Giffen Goods

giffen goods

Giffen goods are those inferior goods on which the consumer spends a large part of his income and the demand for which falls with a fall in their price. Here in this article, we have discussed what are Giffen goods with examples.

What are Giffen Goods?

Giffen goods are rare types of inferior goods that have a paradoxical relationship between price and demand. Typically, when the price of a good increases, the demand for that good decreases.

However, for Giffen goods, the opposite occurs: when the price of a Giffen good increases, the demand for that good increases as well. A few Examples of Giffen are cheap potatoes, coarse cloth, coarse grain, etc.

A Giffen good is an exception to the basic law of demand in microeconomics, which states that as the price of a good increases, the quantity demanded of that good decreases, all other things being equal.

For a Giffen good, however, as the price of the good increases, the quantity demanded of that good also increases, which is counterintuitive and goes against the normal relationship between price and demand.

  • This occurs when the good in question is an inferior good, which means that as a consumer’s income decreases, they consume more of the good.
  • When the price of the good increases, it can actually lead to an increase in demand because the consumer is now worse off and has less money to spend on other goods.

Giffen Meaning

The term “Giffen” refers to the economist Sir Robert Giffen, who first observed the paradoxical relationship between price and demand in the context of the Irish potato famine in the late 19th century. 

In this case, the price of potatoes increased, and despite the fact that consumers could not afford to purchase other goods, they actually increased their demand for potatoes, which were a staple part of their diet.

Giffen goods are named after him, as he was the first to describe this type of good with the paradoxical relationship between price and demand. 

Definition of Giffen Goods

Giffen Goods has been defined as a non-luxury product for which demand increases as the price increases and vice versa, thus defying standard laws of demand.

It refers to a good that people consume more as the price rises. Therefore, a Giffen good shows an upward-sloping demand curve and violates the fundamental law of demand.

  • It is a class of products, the demand of which increases even if the prices keep rising.
  • It is important to note that all Giffen goods are inferior goods, but not all inferior goods are Giffen goods.

Giffen Goods Examples

Giffen goods are rare and unusual, and there are only a few examples that have been identified. These examples are usually related to staple goods, which are items that make up a significant portion of a consumer’s budget.

Here are a few examples of Giffen goods:

  • Potatoes
  • Rice
  • Wheat flour
  • Bread

Potatoes

The original example of a Giffen good was potatoes during the Irish potato famine of the 19th century. During this time, the price of potatoes increased dramatically, and despite the fact that people could not afford to buy other goods, they actually increased their demand for potatoes, which were a staple part of their diet.

Rice

In China, rice has been identified as a possible Giffen good. As the price of rice increases, consumers may have to reduce their consumption of other goods in order to afford the staple grain, and as a result, demand for rice may increase.

Wheat Flour

In some regions of India, wheat flour has been identified as a Giffen good. As the price of wheat flour increases, consumers may have to reduce their consumption of other goods to afford the staple, and as a result, demand for wheat flour may increase.

Bread

In some parts of Africa, bread has been identified as a Giffen good. As the price of bread increases, consumers may have to reduce their consumption of other goods in order to afford the staple food, and as a result, demand for bread may increase.

The concept of Giffen Good is rare and has limited practical significance in modern economies. The paradoxical relationship between price and demand is difficult to observe and measure in most cases.