Giffen Good
A Giffen good is a low income, non-luxury product that defies standard economic and consumer demand theory. Demand for Giffen goods rises when the price rises and falls when the price falls. In econometrics, this results in an upward-sloping demand curve, contrary to the fundamental laws of demand which create a downward sloping demand curve. The term "Giffen goods" was coined in the late 1800s, named after noted Scottish economist, statistician, and journalist Sir Robert Giffen. The concept of Giffen goods focuses on a low income, non-luxury products that have very few close substitutes. Giffen goods can be compared to Veblen goods which similarly defy standard economic and consumer demand theory but focus on luxury goods.Examples of Giffen goods can include bread, rice, and wheat. These goods are commonly essentials with few near-dimensional substitutes at the same price levels.
Definition: A Giffen good is a type of low-income, non-luxury product that violates standard economic and consumer demand theories. Unlike typical goods, the demand for Giffen goods increases as their prices rise and decreases as their prices fall. This phenomenon results in an upward-sloping demand curve, contrary to the usual downward-sloping demand curve.
Origin: The term "Giffen good" was coined in the late 19th century, named after the Scottish economist, statistician, and journalist Sir Robert Giffen. Giffen observed that when the price of basic necessities like bread increased, poor families would buy more of it because they could not afford more expensive substitutes.
Categories and Characteristics: Giffen goods have the following characteristics: 1. They are basic necessities for low-income households; 2. They have few close substitutes; 3. Their demand curve slopes upward. Typical examples of Giffen goods include bread, rice, and wheat. When the prices of these goods rise, low-income families reduce their consumption of other goods and buy more of these basic necessities.
Comparison with Similar Concepts: Giffen goods can be compared to Veblen goods. Veblen goods are luxury items whose demand also increases with rising prices, but for different reasons. The demand for Veblen goods increases due to the prestige associated with higher prices, whereas the demand for Giffen goods increases because low-income households cannot afford other substitutes.
Specific Cases: 1. In some developing countries, rice is a staple food. When the price of rice rises, low-income families may reduce their consumption of meat and vegetables and buy more rice because it is a basic necessity. 2. In 19th-century Ireland, potatoes were a primary food source. When potato prices rose, poor families bought more potatoes because they could not afford other more expensive foods.
Common Questions: 1. Why do Giffen goods violate the law of demand? The demand curve for Giffen goods slopes upward because low-income households cannot afford other substitutes when prices rise, so they buy more of the basic necessity. 2. Are Giffen goods common in reality? Giffen goods are relatively rare in reality because most goods have substitutes, and consumers have a variety of choices.
