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Suppose you have the following preferences u(x,y) = v(x) + y. Calculate the optimal demand functions....

Suppose you have the following preferences u(x,y) = v(x) + y. Calculate the optimal demand functions. Is good x an ordinary  or giffen  good? Please show work.

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Answer #1

Examples of giffen goods : Rice , Potato , Public transport etc . They are in greater demand as price increases . When the price of staple goods like rice increases consumers are left with lesser money to buy expensive products . Hence they cut down on consumption of other products and are forced to buy more rice .

Giffen goods have an upward sloping demand curve .

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