Question

Hello I need to write an article summary about Indifference curves have a negative slope or about Griffen good? Would some be able to help me with this subject? it is for my Economic class Thank you so much :)

Answer 1

***Indifference curve has a negative slope or an indifference curve slope downwards. It is because, if the consumer wants to have more units of one good he will have to reduce the number of units of another good in order to maintain the same level of satisfaction. ( This is beacuse of monotonic preferences)

Monotonic preferences refers to those preferences in which the consumer always prefers the bundle having

1. Either more of both the goods or

2. More of atleast one good and same of the other good.

But because the income and prices don't change what happens is that increase in consumption of one good is followed by decrease in consumption of the other. Still the consumer is willing to sacrifice the lesser units of one good to buy more of the other good because of monotonic preferences.

***Giffen Goods-

These are highly inferior goods in case of which price effect is positive. The positive relation was first of all analyzed by Sir Robert Giffen. He observed that the wage earners in British purchased more of bread when its price increased. They cut down their expenditure on other superior goods and to maintain the minimum consumption level, they purchased more of bread.

He named his observation as ' Giffen paradox' as this behaviour was against law of demand.

1. When their prices falls, purchasing power of consumer rises and he buys less of it and uses extra purchasing power to buy superior goods.

2. When their prices rises, purchasing power goes down, the consumer buys more of it as he lives mainly on it and can not buy much of the superior goods as before so giffen goods being comparatively cheaper is substituted for superior goods even at its high price.