Question

Explain intuitively why a normal good cannot possibly be a Giffen good. (You may wish to...

Explain intuitively why a normal good cannot possibly be a Giffen good. (You may wish to illustrate your answer with a budget line/indifference curve graph.)

Homework Answers

Answer #1

Normal goods are those goods which have positive income effect and substitution effect .When income rises demand for normal goods increases. Inferior goods are those goods which have negative income effect and positive substitution effect ie when income rises demand for such goods fall .Giffen goods is a type of inferior good. Here the negative income effect is more than positive substitution effect.Normal goods have positive income effect and giffen goods have negative income effect and so giffen goods cannot be normal goods.

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