in case of giffen goods, negative income effect is always stronger than substitution effect.HOW?

Answer 1

A Giffen good has an upward sloping Marshallian (or uncompensated) demand curve. The change in quantity resulting from a change in price can be broken down into a substitution effect and an income effect. The substitution effect is always negative and gives rise to Hicksian (or compensated) demand curves that are always downward sloping. In the case of a Giffen good, the good is so undesirable (but is almost an essential at low income levels) that an increase in real income leads to a leftward shift in the Hicksian demand curve. Since the Marshallian demand curve traces out the change in quantity demanded from both the substitution effect and the income effect it is possible (theoretically) to obtain an upward sloping Marshallian demand curve.

In understanding HOW? note that a good cannot be an inferior good at all income levels. At some income levels a good MUST be a normal good. In the case of a Giffen good, it would be a normal good at low income levels, but MUST be an inferior good at higher income levels. The best candidate and illustration of a Giffen good would be potatoes in Ireland around the time of the Irish potato famines. The Irish were relatively poor and potatoes were a large percentage of their budgets. With a decrease in price, people could free up enough income such that they could actually consume fewer potatoes and more of another type of food (which would be normal good).

Answer 2

Giffen goods have close substitutes which people prefer but can't afford to buy, ( steak-hamburger, frozen or canned - fresh foods witch doctors -modern medicine) so when their effective income increases due to a price decrease they switch part of their consumption to the more expensive product, Most, also are goods where more isn't really better like food or medical care, but it is the quality that counts, .

Answer 3

giffen = demand is upward sloping.

it would not be sloping up if income effect was weaker than substitution effect.

Answer 4

i will attempt Giffen goods, they are types of inferior goods that their consumption decrease as the income of the consumer increase