- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 8. Topics in Demand and Supply Analysis
- Subject 3. Substitution Effect, Income Effect, Normal and Inferior Goods
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 ______.
B. Veblen good
C. Giffen good
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. |