Explain: "All giffen goods are inferior goods but all inferior goods are not giffen goods"
Dear Student,
Answer to your question is as follows :
All Giffen goods are inferior goods.
For a Giffen good, the income effect must be negative; that is a fall in income increases demand.
This effect must be strong enough to outweigh the substitution effect whereby higher prices induce consumers to switch away from this good.
But, Not all inferior goods will be Giffen goods, if the income effect is small relative to the substitution effect, a usual shaped demand curve results.
In other words, Inferior goods are for which a consumer's demand increases when his income decreases and vice versa.
Now,people consume giffen goods at the time of price fluctuation i.e., why all the giffen goods are inferior ( because at the time of price fluctuation people can't afford normal goods) the negative income effect is always greater than the positive income substitute which is not in the case of all inferior goods.
Regards
Answer to your question is as follows :
All Giffen goods are inferior goods.
For a Giffen good, the income effect must be negative; that is a fall in income increases demand.
This effect must be strong enough to outweigh the substitution effect whereby higher prices induce consumers to switch away from this good.
But, Not all inferior goods will be Giffen goods, if the income effect is small relative to the substitution effect, a usual shaped demand curve results.
In other words, Inferior goods are for which a consumer's demand increases when his income decreases and vice versa.
Now,people consume giffen goods at the time of price fluctuation i.e., why all the giffen goods are inferior ( because at the time of price fluctuation people can't afford normal goods) the negative income effect is always greater than the positive income substitute which is not in the case of all inferior goods.
Regards