CFA Practice Question

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CFA Practice Question

The demand function for good X is Qx = 79 - 22 x Px - 5 x I. X is most likely to be a ______.

A. normal good
B. Veblen good
C. Giffen good
Correct Answer: C

The -22 indicates the higher its own price, the less it is consumed. It is not a Veblen good. The -5 indicates the higher the income, the less the good is consumed. Therefore, it is a Giffen good.

User Contributed Comments 3

User Comment
bravoshieh If the quantity consumed drops when price rises, then it does not make a Giffen good? I would say it is rather an inferior good. Correct me please if I get it wrong.
plablonde1 Giffen goods are inferior goods
weebe Giffen goods have upward sloping curve, right? So as price increases demand should increase.
But in this equation as price increase demand decreases. still Confused.
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