What happens to the consumption of Giffen goods when their prices rise? Consumption decreases Consumption increases Consumption remains unchanged Consumption fluctuates randomly
Question
What happens to the consumption of Giffen goods when their prices rise? Consumption decreases Consumption increases Consumption remains unchanged Consumption fluctuates randomly
Solution
When the prices of Giffen goods rise, consumption increases. This is a unique characteristic of Giffen goods, which are inferior goods that people consume more of as their price increases, contrary to the law of demand. This happens because the income effect (where people can't afford to buy as much of other goods and so buy more of the inferior good) outweighs the substitution effect (where people buy less of a good if its price rises).
Similar Questions
How does the income effect impact the consumption of Giffen goods? An increase in income leads to less consumption A decrease in income leads to more consumption An increase in income leads to more consumption Both a) and b)
What is the likely consumer response to high prices and steady consumption in the short run?Option Increase consumption to stabilize prices Decrease consumption to lower prices Shift demand outward to increase competition Maintain steady consumption by accepting higher prices
What is the term for the change in total consumption resulting from a price change for a good, causing a consumer to buy more of this good rather than other goods? Income effect Substitution effect Price effect Commodity effect
A decrease in the price level ________ real wealth, which causes consumption to ________. a. raises; increase b. raises; decrease c. lowers; increase d. lowers; decrease
What distinguishes a Giffen good from other inferior goods?The demand decreases with a decrease in priceThe demand increases with an increase in priceThe demand decreases with an increase in incomeThe demand increases with a decrease in income
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