In a situation of decline in price of a Giffen Commodity, we find:
For a price fall, compensated substitution raises quantity demanded. A Giffen good is sufficiently inferior that the real-income gain lowers its demand by a larger amount,…
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In a situation of decline in price of a Giffen Commodity, we find:
Answer and explanation
Correct answer A
For a price fall, compensated substitution raises quantity demanded. A Giffen good is sufficiently inferior that the real-income gain lowers its demand by a larger amount, so total demand falls. Thus the positive substitution effect is smaller in magnitude than the negative income effect. The listed alternative describes an inferior but non-Giffen good; the last two reverse the quantity effects of a price fall.
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UGC NET Economics