Using the Slutsky equation in terms of elasticities, decide whether the following statement is true or...

Using the Slutsky equation in terms of elasticities, decide whether the following statement is true or false. Explain and justify your answer.
“A Giffen good must be an inferior good, but an inferior good need not be a Giffen good.”

Expert Solution

Answer:

Inferior goods are the products whose demand increase when the consumer's income deline and whose demand decrease as the customer income increase.

For instance, used vehicle are cheaper.If my salary is low , I would purchase a used vehicle and as if my income rises, I would incline toward a brand new vehicle that I can afford.

Giffen products is a unique sort of inferior products whose demand increase as the cost of the good increase.

An example of Giffen good is rice , which is the staple nourishment of an area and larger part of the individuals consumed them that can't be substituted.suppose when the cost of rice increases, their is not a viable alternative or substitute for rice in the food basket , so its demand doesn't fail. This defy the basic permit law of demand.

The contrast between these two is that while all giffen products are inferior , every inferior goods are not Giffen . Inferior merchandise should have an costly substitute.Then again for a good to be Giffen ,it ought not exclusively be inferior but also lack of close substitute products.

ekkarill92 answered 1 year ago

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