1)
Dave consumes two normal goods, X and Y, and is
currently at an optimum. If the price of good X falls, we can
predict with certainty that
a. the substitution
effect will be positive for good X and negative for good Y.
b. Dave will consume
more of both goods because his real income has risen.
c. Dave may consume
more or less of good X, but he will consume less of good Y.
d. the substitution
effect will offset the income effect for good X.
2)
Which of the following is an example of a Giffen
good?
a. fish in Japan
b. rice in the Chinese
province of Hunan
c. pork in India
d. Both a and b are
correct.
1) Answer is B.
Because decrease in price increases his real income, definitely he will be consuming more of both the goods.
2) Answer is D. Giffen goods are those goods on which law of demand does not apply.
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1) Dave consumes two normal goods, X and Y, and is currently at an optimum....
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