Question

Which of the following describes the Giffen good case? When the price of the good …

1. rises, the income effect is opposite to and greater than the substitution effect, and
consumption falls.
2. falls, the income effect is in the same direction as the substitution effect, and
consumption rises.
3. falls, the income effect is in the opposite direction to the substitution effect, and
consumption falls.
4. falls, the income effect is in the opposite direction to the substitution effect, and
consumption rises.

Answer 1

3. falls, the income effect is in the opposite direction to the substitution effect, and

consumption falls.