The correct answer is: Both ‘a’ and ‘b’.
Veblen goods are luxury goods for which the demand increases as the price increases. This is because Veblen goods are seen as a status symbol, and people are willing to pay more for them in order to show off their wealth or social status.
Giffen goods are goods for which the demand increases as the price decreases. This is because Giffen goods are often necessities, and people are willing to buy more of them even if the price is higher, because they cannot afford to do without them.
Both Veblen goods and Giffen goods are exceptions to the law of demand, which states that the demand for a good will decrease as the price of the good increases.
Here is a brief explanation of each option:
- A. Veblen goods are luxury goods for which the demand increases as the price increases. This is because Veblen goods are seen as a status symbol, and people are willing to pay more for them in order to show off their wealth or social status. For example, a luxury car like a Rolls-Royce may be more expensive than a more affordable car, but people who can afford it may be willing to pay more for it because it makes them feel wealthy and important.
- B. Giffen goods are goods for which the demand increases as the price decreases. This is because Giffen goods are often necessities, and people are willing to buy more of them even if the price is higher, because they cannot afford to do without them. For example, if the price of bread goes up, people may be forced to buy less of other goods in order to afford bread. However, if the price of bread goes down, people may actually buy more bread, even though it is now cheaper, because they can now afford to buy more of it.
- C. Both ‘a’ and ‘b’. This is the correct answer, as both Veblen goods and Giffen goods are exceptions to the law of demand.
- D. None. This is the incorrect answer, as both Veblen goods and Giffen goods are exceptions to the law of demand.