Here it is said that equilibrium price and quantity has increased but it is not clear that by which proportion it increases. If price increase causes an increase in quantity demand in case of giffen good. But here increase in demand has caused increase in price. If due to increase in demand, price continues to increase, demand for the good will be less responsive in times to come. Thus demand will be less elastic because with price increase, demand will fall in long run. Price will be more elastic because due to increase in demand, price will increase more.
Get Answers For Free
Most questions answered within 1 hours.