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    giffen goods

    Definition of Giffen Goods

    • It is a low-income product which does not confirm with the law of demand as the demand of the product decreases with the decrease in the price of the product.
    • It has an upward sloping demand curve.
    • The unconventional demand for Giffen goods is influenced by income pressures and lack of close substitutes.
    • It is named after a Scottish journalist and statistician Sir Robert Giffen.
    • Giffen paradox refers to the behaviour of consumers when it comes to Giffen goods.

    Conditions to Qualify as Giffen Goods

    • The good must be inferior as in situations of budget shortage, the consumer will consume more of the Giffen good.
    • It must constitute a substantial portion of the total consumption relative to the consumer’s budget.
    • There must be no close substitute available.

    Historical Examples of Giffen Goods

    • The cost of bread was rising as people lacked the income to buy meat during World War II was used as one of the earliest examples by Alfred Marshall to explain this concept.
    • The rice-wheat experiment in China by Harvard economists Jensen and Miller that went on to show reduction in demand for rice when the price of rice was reduced through subsidies.

    Difference Between Giffen and Veblen Goods

    • In both Giffen and Veblen Goods demand curve is upward sloping and the demand for the commodity behaves unconventionally.
    • Veblen goods are premium products or luxury goods whose demand falls with the fall in the price of the good as it no longer serves its purpose as a status symbol or a mark of wealth. The income effect has little impact on these goods and neither does the substitution effect.
    • Giffen goods, on the other hand, refers to those poor man’s goods that are not preferred by consumers if they were to have an alternative. They are usually essentials.

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