Multiple Choice
Suppose the price of good X, a Giffen good, increases. Which of the following statements are TRUE?
I. The substitution effect of the price increase causes consumers to buy less of good X.
II. The substitution effect of the price increase causes consumers to buy more of good X.
III. The income effect of the price increase causes consumers to buy more of good X.
IV. The income effect of the price increase causes consumers to buy less of good X.
A) I and IV
B) II and IV
C) I and III
D) II and III
Correct Answer:
Verified
Correct Answer:
Verified
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