Giffen goods are inferior goods for which the income effect dominates the substitution. normative or positive statement?
The correct answer and explanation is:
Correct Answer: Positive statement
A positive statement is a factual or descriptive claim about how the world is. It can be tested or verified through observation or empirical evidence. In contrast, a normative statement is based on value judgments, expressing how the world ought to be or what should happen.
The statement “Giffen goods are inferior goods for which the income effect dominates the substitution effect” is positive because it describes a specific, testable economic phenomenon. It does not include any judgment about whether this is good or bad; it simply explains a theoretical relationship between income effect and substitution effect in consumer behavior.
In economics, Giffen goods are a rare type of inferior good. Typically, when the price of a good increases, the quantity demanded decreases due to the substitution effect. But for Giffen goods, the good is so strongly inferior that when its price increases, consumers end up buying more of it. This counterintuitive behavior happens because the income effect (the effect of a change in purchasing power) is stronger than the substitution effect (the tendency to switch to cheaper alternatives). It implies that a rise in price makes the consumer effectively poorer, which in turn causes them to consume more of the inferior good since they cannot afford better alternatives.
Since this statement can be discussed and potentially verified through data and consumer behavior studies, it qualifies as a positive statement. It does not involve opinion, ethics, or policy recommendations. It fits into the field of economic theory and analysis, which seeks to understand and explain real-world consumer actions through models and empirical testing, not value-based conclusions.