A consumer spends Rs. 100 on only two goods, A and B, with non-satiation. The price of B is fixed at Rs. 20. When the price of A is Rs. 10, the consumer buys 3 units of B. When the price of A is Rs. 20, she buys 5 units of A. From this we can conclude: I. A is an inferior good. II. A is a Giffen good. III. B is a complement of A.
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Demand theory and elasticity has come up 161 times in 7 exams since 2004.
This question is on Income and substitution effects: the Slutsky equation, part of Demand theory and elasticity in Microeconomics.
Splitting a price change into a substitution effect and an income effect, and why Giffen goods break the law of demand.
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Question from the DSE 2009 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.