Question : Law of Demand violations include:
Option 1: Substitution effect is negative
Option 2: Income effect is negative
Option 3: Negative income effect is less than substitution effect
Option 4: Negative income effect is greater than substitution effect
Correct Answer: Negative income effect is greater than substitution effect
Solution :
Income effect is greater than substitution effect in giffen goods. Giffen goods are the exceptions to the law of demand.
GIffen goods are those incredibly subpar products that, even if their prices go down, their demand goes down. Giffen products have a strong negative income effect, which indicates that when buyer income rises, so does consumer demand for these products.
Hence option d is the correct answer.
