- 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
Which one is inconsistent with the fundamental axioms of demand theory?
B. A Giffen good
C. A Veblen good
A. An inferior good
B. A Giffen good
C. A Veblen good
Correct Answer: C
A Veblen good is a good that people buy because it is expensive, as a show of wealth. Therefore it is a superior good with respect to income, but if the price falls, less of the good will be demanded.
User Contributed Comments 6
| User | Comment |
|---|---|
| gill15 | Isnt a Giffen Good also inconsistent with Demand Theory? It also has an Upward SLoping demand Curve(As P decreases - you consume less of it). I would say they both are inconsistent with demand theory. Anybody? |
| SKIA | gill15 - I think the difference is that the Giffen Good is only related to inferior goods, whereas the the Veblen Good is related to all goods, which is why Veblen is the answer here. |
| Shaan23 | I dont get it either. Veblen and GIffen goods violate the axioms of demand. I just checked on wikipedia as well. THe first line of giffen goods is that it violates the axioms of demand. |
| nabada0419 | Axiom of Demand Theory: As price of the prod increases, qty demand of the prod decreases. For inferior good, as price increase qty demand will fall eventually. Thus, Giffen Good does not violating Axiom. However, Veblen Good states that demand increases as the price increase, in which just opposite of the axiom |
| yesitan | Is this because Giffen goods will turn from upward sloping to downward sloping when it reaches some point, hence, Giffen goods is not the answer to violate the axioms of demand? |
| 10425406 | or does is mean both income and substitution effect on price change for veblen good is positive? |