Giffen good

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In economics, a Giffen good is one that people consume more of when its price increases. 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.

Alfred Marshall wrote in Principles of Economics:

There are however some exceptions. For instance, as Mr Giffen has pointed out, a rise in the price of bread makes so large a drain on the resources of the poorer labouring families and raises so much the marginal utility of money to them, that they are forced to curtail their consumption of meat and the more expensive farinaceous foods: and, bread being still the cheapest food which they can get and will take, they consume more, and not less of it. But such cases are rare; when they are met with they must be treated separately.[1]

References[change | change source]

  1. Alfred Marshall (1895). Principles of Economics. An introductory volume. Macmillan, London. p. 208.