he income elasticity of a Giffen good A. Is positive B. Is negative C. Is zero...

he income elasticity of a Giffen good

	A.	Is positive
	B.	Is negative
	C.	Is zero
	D.	Is infinity
	E.	Cannot be specified without more information.

An Engel curve

	A.	Always slopes up for an inferior good
	B.	Always slopes down for an inferior good
	C.	May slope up or down for a normal good
	D.	Does not relate to the normal or inferior good concepts
	E.	Is horizontal

Solutions

Expert Solution

1) In case of giffen goods , for a fall in price of commodity, Substitution Effect will increase the quantity of good consumed and income effect will work in opposite direction and the quantity of good consumed will decrease because of increase in income. Income effect thus works in opposite direction of Substitution Effect and is negative in sign. Hence , income elasticity is negative.

B is correct.

2) An engel curve gives the relation between income and the quantity demanded for a commodity. The curve is always upward sloping for a normal good as its consumption increases as income increases. But for an inferior good, the curve is downward sloping because its consumption decreases as income increases.

Hence option B is correct.

Rahul Sunny answered 1 year ago

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