Use the Slutsky equation to show that a Giffen good must be an inferior good, BUT an inferior good need not be a Giffen good
What will be an ideal response?
The Slutsky equation may be written as dQ/dpTotal = dQ/dpsubs - _(dQ/dI). For a Giffen good, dQ/dpTotal is positive, which implies that - _(dQ/dI) must be positive and large enough to offset dQ/dpsubs, which is always negative. For any inferior good, however,
- _(dQ/dI) is positive but not necessarily large enough to make dQ/dpTotal positive.
You might also like to view...
The U.S. economy of the mid 1980s through 2007 is typically referred to as ________
A) "The Great Depression" B) "The Great Inflation" C) "The Great Moderation" D) all of the above E) none of the above
Vertical contracts between manufacturers and retailers often aim to
a. Incentivize the retailers to undertake costly activities, which they otherwise may not realize the full benefits of on their own b. Serve as a "signal" of the manufacturer's belief of the likely success of his product c. Reimburse the retailer for the cost of managing an extended inventory d. All of the above