Economics (AS & A Level) · May / June 2022 · Paper 32 · Question 6
9708Indifference curves and budget lines
When the price of a good falls, the overall effect on the quantity demanded can be separated into income and substitution effects. Which statement describes a Giffen good?
- AThe income effect is irrelevant for a Giffen good.
- BThe income effect works in the same direction as the substitution effect.
- CThe income effect works against the substitution effect and is of a greater magnitude.
- DThe income effect works against the substitution effect but is of a smaller magnitude.
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Correct answer: C. The income effect works against the substitution effect and is of a greater magnitude.
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