In the context of demand, a Giffen good is one for which:
A. Demand is independent of price
B. Demand increases as price increases
C. Demand decreases as price increases
D. Demand is perfectly elastic
Answer: Option B
Solution (By JKSSB Mock Tests)
A Giffen good is an inferior good for which the income effect outweighs the substitution effect, leading to an upward-sloping demand curve (demand rises when price rises).
Explanation:
A large country can improve its terms of trade by restricting imports, thereby extracting some monopoly or monopsony rent; the optimal tariff balances this gain against the efficiency loss.
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