Question

price of x fall x is giffen good. Draw a graph showing income and substitution effect

Answer 1

In case the good is a Giffen good the income effect and the substitution effect will move in opposite directions. The good must be inferior and so the income effect will be negative and is shown by the movement between indifference curves. The substitution effect is given by the move along the original indifferent curve. The negative income effect dominates the positive substitution effect in case of a Giffen good. The positive substitution effect is x3-x1 and the income effect is negative given by x3-x2.