Use the Slutsky equation to show that a Giffen good must be an inferior good, BUT an inferior good need not be a Giffen good
What will be an ideal response?
The Slutsky equation may be written as dQ/dpTotal = dQ/dpsubs - _(dQ/dI). For a Giffen good, dQ/dpTotal is positive, which implies that - _(dQ/dI) must be positive and large enough to offset dQ/dpsubs, which is always negative. For any inferior good, however,
- _(dQ/dI) is positive but not necessarily large enough to make dQ/dpTotal positive.
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What will be an ideal response?
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