A problem involving food prices and consumption in Sweden in 1850 and 1890 was p

Question

A problem involving food prices and consumption in Sweden in 1850 and 1890 was previously studied. Potato consumption was the same in both years. Real income must have gone up between 1850 and 1890, since the amount of food staples purchased, as measured by either the Laspeyres or the Paasche quantity index, rose. The price of potatoes rose less rapidly than the price of either meat or milk, and at about the same rate as the price of grain flour. So real income went up and the price of potatoes went down relative to other goods.

a.) From this information, we can tell that potatoes were either
1. definitely an inferior good
2. possibly an inferior good, but also possibly a normal good
3. definitely a normal good

b.) Can one also tell from these data whether it is likely that potatoes were a Giffen good?
1. Potatoes were probably not a Giffen good
2. There is not enough information to make an educated guess
3. Potatoes were probably a Giffen good

Explanation / Answer

a) 1. Potatoes are an inferior good because as income increased demand for potatoes decreased. b) A Giffen good is a good that people buy more of as the price increases. Since the price relative to other goods went down and demand remained the same, I would say that this is not a Giffen good. 1.

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