Which of the following statement is incorrect?

Question

Accepted Answer

The correct option is 4:
The statement "Some Giffin goods are not inferior goods" is incorrect because, by definition, all Giffen goods must be inferior goods. Giffen goods are an extreme and rare type of inferior good where the income effect (which is negative for all inferior goods) outweighs the substitution effect, causing the demand curve to slope upward. For a good to be a Giffen good, it must exhibit a negative income elasticity (the characteristic of inferior goods), consume a significant portion of the consumer's income, and lack close substitutes. Therefore, the category of Giffen goods is entirely contained within the category of inferior goods, making it impossible for a Giffen good not to be an inferior good.

The incorrect option is 1:
The income elasticity for inferior goods to a consumer is negative. This statement is correct. Inferior goods are those for which demand decreases as consumer income increases, resulting in a negative income elasticity of demand.

The incorrect option is 2:
The total effect of a change in the price of a good on its quantity demanded is called the price effect. This statement is correct. The price effect is the total change in quantity demanded resulting from a change in the price of a good, which is theoretically decomposed into the substitution effect and the income effect.

The incorrect option is 3:
An IC must be downward sloping to the right. This statement is correct. An Indifference Curve (IC) is downward sloping because it represents a trade-off between two goods; to maintain the same level of utility (satisfaction), if a consumer gains more of one good, they must give up some of the other. This ensures that the marginal rate of substitution is negative.