A Giffin good is not correctly described by which of the following?
A)A Giffin good must be an inferior good.
B)A Giffin good must be such that the income effect and the substitution effect move in opposite directions, and the income effect outweighs the substitution effect.
C)A Giffin good must be such that the substitution effect outweighs the income effect for an inferior good.
D)A Giffin good must have an upward-sloping demand curve.
I chose C)
The correct answer is C) "A Giffin good must be such that the substitution effect outweighs the income effect for an inferior good." This statement does not accurately describe a Giffin good.
To understand why, let's first define what a Giffin good is. A Giffin good is a type of inferior good where the demand for the good increases when its price rises and decreases when its price falls. This seems counterintuitive because with most goods, as the price increases, people tend to buy less of it. However, Giffin goods are an exception to this general rule.
Now let's examine statement C) more closely. It suggests that the substitution effect outweighs the income effect for an inferior good. The substitution effect refers to the change in demand resulting from a change in the relative prices of goods, while the income effect refers to the change in demand resulting from a change in real income. In the case of Giffin goods, the income effect dominates the substitution effect.
When the price of a Giffin good increases, consumers with limited income have to spend more on that particular good, leaving them with less money to spend on other goods. This reduction in purchasing power can lead them to increase their consumption of the Giffin good and decrease their consumption of other goods, even though the price of the Giffin good has increased. Hence, the income effect is stronger and outweighs the substitution effect.
In contrast, statement C) implies that the substitution effect should be stronger for a Giffin good, which is incorrect. Therefore, C) is the correct answer.