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A consumer's bundle includes good X and good Y. Determine whether the following statements are...

Question:

A consumer's bundle includes good X and good Y. Determine whether the following statements are true, false, or uncertain.

a. If good X is a normal good and its price rises, the consumer will buy more of it.

b. If good X is an inferior good and its price rises, the consumer will buy less of it.

c. If good X is a Giffen good and its price falls, the consumer will buy less of it.

Types of Economic Goods

In order to predict demand for a good, it's necessary to know what type of good it is. There are three types:

  • a normal good is the type where consumers will buy more if the price falls and less if the price rises (most common)
  • an inferior good is the type that consumers will upgrade from when their circumstances change or the price of the normal good falls (think of upgrading to steak from hamburger, for example)
  • a Giffen good is the type where consumers must continue to buy the good even at a higher price because their incomes are so low that nothing else is affordable (think of rice or ramen noodles or potatoes, for example)

Answer and Explanation:

a. If good X is a normal good and its price rises, the consumer will buy more of it.FALSE - consumers buy less of a normal good if price rises
b. If...

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Giffen Goods: Definition, Examples & Demand Curve

from Financial Accounting: Help and Review

Chapter 7 / Lesson 24
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