Unformatted text preview: the general public will prefer lower prices. Another possible case that could cause a Giffen good is the case in which a good is inferior and the income effect outweighs the substitution effect. To illustrate, assume that ACME Cola is an inferior good. When it's price increases, the income effect makes Calvin feel poorer. If the income effect is very strong, and the substitution effect is very weak, then Calvin will buy more ACME Cola, because the consumption of inferior goods increases with decreases in income. This, too, is unlikely, however, because the substitution effect is almost always stronger than the income effect. Demand Curve for a Giffen Good...
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- Fall '08
- Microeconomics, Inferior Goods, Giffen good