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Question 1) If a good is a Giffen good, it must be an inferior good A) True B) False Question 2) If a good is an inferior good, it must be a Giffen good. A) True B) False

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Question 3) If the price of a good rises, then the substitution effect of this price change A)Reduces demand for the good if it is a normal good but not if it is inferior. B)Reduces demand for the good if it is a luxury but not if it is a necessity. C)Never increases and typically decreases demand for this good. D)Is positive if the goods are substitutes and negative if they are complements. E)Is negative if the goods are substitutes and positive if they are complements.

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Answers

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Question 1 True Question 2 False Question 3 C The answers to all three of these questions follow easily from the discussion in Chapter 8 of your textbook (or from today’s lecture).

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Chapter 8 SLUTSKY EQUATION. Substitution Effect and Income Effect x1x1 x2x2 m/p 2 m’/p 2 X Y Z Substitution Effect Income Effect Shift Pivot.

Chapter 8 SLUTSKY EQUATION. Substitution Effect and Income Effect x1x1 x2x2 m/p 2 m’/p 2 X Y Z Substitution Effect Income Effect Shift Pivot.

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