Theorizing Consumer Behaviour

1) When does the demand curve potentially slope upward?
– This happens when a consumer buys more of a good when its price rises-Case of Giffen goods
a. Economists use the term Giffen good to describe a good that violates the law of demand.
b. Giffen goods are goods for which an increase in the price raises the quantity demanded.
c. The income effect dominates the substitution effect.
d. They have demand curves that slope upwards.
2) How wages affect labour supply?
If the substitution effect is greater than the income effect for the worker, he or she works more.
If income effect is greater than the substitution effect, he or she works less.
3) How do interest rates affect household saving?
a. If the substitution effect of a higher interest rate is greater than the income effect, households save more.
b. If the income effect of a higher interest rate is greater than the substitution effect, households save less.

Richa Shukla
Globsyn Business School