Question

1)
    Dave consumes two normal goods, X and Y, and is currently at an optimum. If the price of good X falls, we can predict with certainty that
       a.    the substitution effect will be positive for good X and negative for good Y.
       b.    Dave will consume more of both goods because his real income has risen.
       c.    Dave may consume more or less of good X, but he will consume less of good Y.
       d.    the substitution effect will offset the income effect for good X.

2)
    Which of the following is an example of a Giffen good?
       a.    fish in Japan
       b.    rice in the Chinese province of Hunan
       c.    pork in India
       d.    Both a and b are correct.

Answer 1

1) Answer is B.

Because decrease in price increases his real income, definitely he will be consuming more of both the goods.

2) Answer is D. Giffen goods are those goods on which law of demand does not apply.

#Please rate positively...thank you