Giffen good facts for kids
In economics and consumer theory, a Giffen good is a product that people consume more of as the price rises and vice versa. This violates the Law of Demand. This paradox is named after Robert Giffen, who first described it.
Giffen observed that households that only had a minimum wage to survive, bought more bread when the bread price increased. This can be explained as follows: these households have to split their income between the cheap (and inferior) good, e.g. "bread", and an expensive good, e.g. meat. When the price of this inferior good increases by a certain amount, they can no longer afford to buy the more expensive good. For this reason, they spend more of their income on bread in order to be able to survive.
A Giffen good is considered to be the opposite of an ordinary good.
Background
Giffen goods are named after Scottish economist Sir Robert Giffen, to whom Alfred Marshall attributed this idea in his book Principles of Economics, first published in 1890. Giffen first proposed the paradox from his observations of the purchasing habits of the Victorian era poor.
Examples
Evidence for the existence of Giffen goods has generally been limited. A 2008 paper by Robert Jensen and Nolan Miller made the claim that rice and wheat/noodles are Giffen goods in parts of China.
Some types of premium goods (such as expensive French wines, or celebrity-endorsed perfumes) are sometimes called Giffen goods.
Great Famine in Ireland
Potatoes during the Irish Great Famine were once considered to be an example of a Giffen good. Along with the Famine, the price of potatoes and meat increased. Compared to meat, it is obvious that potatoes could be much cheaper as a staple food. Due to poverty, individuals could not afford meat anymore; therefore, demand for potatoes increased. Under such a situation, the supply curve will increase with the rise in potatoes’ price, which is consistent with the definition of Giffen good. However, Gerald P. Dwyer and Cotton M. Lindsey challenged this idea in their 1984 article Robert Giffen and the Irish Potato, where they showed the contradicting nature of the Giffen "legend" with respect to historical evidence.
The Giffen nature of the Irish potato was also later discredited by Sherwin Rosen of the University of Chicago in his 1999 paper Potato Paradoxes. Rosen showed that the phenomenon could be explained by a normal demand model.
Charles Read has shown with quantitative evidence that bacon pigs showed Giffen-style behaviour during the Irish Famine, but that potatoes did not.
Other proposed examples
- Some suggest that a number of other goods, such as cryptocurrencies like Bitcoin might be Giffen.
- Anthony Bopp (1983) proposed that kerosene, a low-quality fuel used in home heating, was a Giffen good.
- Schmuel Baruch and Yakar Kanai (2001) suggested that shochu, a Japanese distilled beverage, might be a Giffen good.
- In a 2005 article, Sasha Abramsky of The Nation conjectured that gasoline, in certain circumstances, may act as a Giffen good.
See also
In Spanish: Bien de Giffen para niños
- Capital good
- Consumer choice
- Price elasticity of demand
- Supply and demand
- Ordinary good
- Veblen good
- Inferior good
- Normal good
