Re: ECON (MICRO) -- �E�ٰ�

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Subject: Re: ECON (MICRO)

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Date Posted: 00:41:25 10/08/04 Fri
In reply to: ��NECON�J�H 's message, "ECON (MICRO)" on 19:25:54 10/03/04 Sun

The Law of Demand states that the higher the price of a good, the lower its quantity demanded
other things being constant(ceteris paribus)

Giffen good exists when an inferior good which has its income effect overweights its subsitution effect
Substitution effect is always negative, as a lower relative price always leads to an increase in the quantity demanded.
For inferior good, the quantity demanded will decrease when consumer's real income increases.
When this negative income effect is greater than the substituion effect,
the quantity demanded will increase with price, the demand curve for giffen good is upward sloping.
This doesn't follow the Law of Demand.

The existence of a giffen good is a logical possibility, if giffen good is observed in the real world.
The Law of demand will be refuted.
Therefore, the law of demand is asserted rather than derived.

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