True/False/Explain: For a Giffen Good, the uncompensated demand curve is upward sloping and the compensated demand...

True/False/Explain: For a Giffen Good, the uncompensated demand curve is upward sloping and the compensated demand curve is downward sloping. (You get your points for the quality of the explanation, not guessing T or F. The uncompensated demand is from the UMP and the compensated demand is from the EMP.)

Solutions

Expert Solution

True.

On uncompensated demand curve is upward sloping and the compensated demand curve is downward sloping. Because,

Uncompensated demand curve is given by Marshall. He suggests that, how change in price and income causes the change in demand.
According to him in case of giffen good, if the price of a commodity increases then the demand will also increase and vice versa. This shows a direct relationship between price and demand hence the curve is upward sloping.
Compensated demand curve was given by hicks, he demonstrated that how demand is affected by substitution goods and its utility.
According to him, in case of giffen goods (strongly inferior goods), even if the price of the commodity increases the demand of the commodity decreases due to substitution effect. This shows an indirect relationship between the price and demand. Hence, the curve will be downward sloping.

Rahul Sunny answered 1 year ago

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