Q. Which of the following is/are correct with respect to ‘Giffen goods’?

1. The demand for such a good can be inversely or positively related to its price depending on the relative strengths of these two opposing effects.
2. If the income effect is stronger than the substitution effect, the demand for the good would be positively related to its price.

Select the correct answer from the codes given below:
Answer: Both 1 and 2
Notes: The demand for such a good can be inversely or positively related to its price depending on the relative strengths of these two opposing effects. If the substitution effect is stronger than the income effect, the demand for the good and the price of the good would still be inversely related. However, if the income effect is stronger than the substitution effect, the demand for the good would be positively related to its price. Such a good is called a Giffen good.