CFA Practice Question

There are 539 practice questions for this study session.

CFA Practice Question

In the case of a Giffen good with a decrease in its own price, which of the following statements is most likely true?

A. Both the substitution and income effects lead to an increase in the quantity purchased.
B. The substitution effect leads to an increase in the quantity purchased while the income effect leads to a decrease.
C. The income effect leads to an increase in the quantity purchased while the substitution effect leads to a decrease.
Correct Answer: B

The income effect overwhelms the substitution effect, leading to an overall effect of decreased quantity purchased.

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