=+7.9*† Business Application: Are Gucci Products Giffen Goods? We defined a Giffen good as a good that consumers (with exogenous incomes) buy more of when the price increases. When students first hear about such goods, they often think of luxury goods such as expensive Gucci purses and accessories. If the marketing departments for firms like Gucci are very successful, they may find a way of associating price with “prestige” in the minds of consumers, and this may allow them to raise the price and sell more products. But would that make Gucci products Giffen goods? The answer, as you will see in this exercise, is no.

A. Suppose we model a consumer who cares about the “practical value and style of Gucci products,”

“dollars of other consumption,” and the “prestige value” of being seen with Gucci products. Denote these as x1

, x2

, and x3

, respectively.