CFA Practice Question

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CFA Practice Question

A Giffen good is always a(n) ______.

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

The classic example of a Giffen good is bread for the very poor. If their income falls, they will stop buying luxuries such as meat, and will buy more bread instead, to fill themselves up. The demand for bread falls because people have less money to spend on it (the income effect), but it also rises because people use bread as a substitute for meat (the substitution effect). In this case, the substitution effect is larger than the income effect.

User Contributed Comments 1

User Comment
Cartagena Great example
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