Hi Everyone,
This short video explains what is meant by ‘Giffen Goods’. There are several types of goods and services. They generally fall under the categories of luxury goods, normal goods, and inferior goods. giffen goods are a type of inferior good. The video explains why giffen goods are different from other inferior goods and why it is important to understand this difference.
You can watch the video using the link below:
What are Giffen Goods?
A giffen good is particular type of inferior good. An inferior good has a negative income elasticity. As income increases the demand for an inferior good falls.
When the price of an inferior good falls, ceteris paribus, real income falls. Real income increases as a person can buy more with the same nominal income. A fall in price also means that the good or service becomes relatively cheaper compared to other goods and services. This relative price fall will increase quantity demanded. The change in demand due to the change in real income is known as the income effect.
The change in quantity demanded due to a price change in the absence of any change in real income is the price effect. For an inferior good to be considered a giffen good, the income effect needs to be greater than the substitution effect. If the income effect is greater, a price fall will result in a lower quantity demanded and an increase in price will result in a higher quantity demanded. Hence, we have what we call an upward sloping demand curve. See the graph below.
Key Points from the Video
Giffen goods can potentially exist for those with insufficient income to be able to sufficiently meet their needs or wants. Therefore, the lower quality good or service acts as a substitute for the good or service they actually desire. As soon as that person experiences an increase in real income, which could be because of a fall in the price of the giffen good, they will acquire more of the goods and services that they actually want.
There are not many real examples of giffen goods in the world today. For example, rice in most places in the world is not normally treated as a giffen good. Though, it is probably one of the better examples of a good that is more likely to be a giffen good.
Questions
Below are two questions relating to the content of this video. The first person to get both questions correct will win 1 SBD. All attempts will receive an upvote. I will also upvote the most engaging comments, see here for more information.
Question 1
Question 2
Other related posts
For more information on giffen goods, indifference curves and other aspects of consumer theory, you can access my other posts and videos using the following links.
My giffen goods post can be accessed using the following link:
My indifference curves post can be accessed using the following link:
My indifference curves video can be accessed using the following link:
For more information regarding demand, supply and equilibrium, you can read my Steemit blog using the following link:
You can also watch my demand and supply video on Dtube using the following link:
For more information on utility, you can read my Steemit blog using the following link:
▶️ DTube
▶️ IPFS
My answers to the questions are:
There was actually a study done in China to analyze Giffen behaviors with certain staples as part of an effort to study welfare programs. The study involved subsidizing rice in Hunan province and wheat [flour] in Gansu province, the staple crops of those two areas. The research paper is an interesting read, and can be found here. That's also how I figured out wheat flour was most likely to be a Giffen good... although if it were left strictly to my own personal tastes, I'd go with the Domino's pizza as a Giffen good.
The paper also says that, they found "weaker evidence for [Giffen behaviour of] wheat in Gansu" and that in the the estimation, "none of the cases are the coefficients statistically significant" at the 5% level.
Those who are having difficulty understanding this term let me put you in easy way.
Giffen goods are inferior goods ( goods who's demand decreases with wealth) who's "wealth effect" is stronger than its "price effect". Meaning that when the price changes the effect of wealth shrinking relatively, (making demand go up since it is an inferior good) over powers the effect of the price increasing (making demand go down). They do not involve any interaction between prices and preferences.
However, Veblen goods are good's who's price interacts with preferences meaning they become more preferred when their price increases. Without this interaction, Veblen goods are not possible.
Can something be a Giffen and a Veblen good? I haven't worked it out rigorously, but probably not. It seems like Veblen good cannot be not inferior (i.e. the wealthier you are, the more veblen goods you demand) a requirement for Giffen goods.
Yes (but, this would be a Giffen good where the price effect eventually overcomes the wealth effect).
Again I don't think so.
Hope this helps! @spectrumecons
Nice response @cyberwarrior. Seems like you know quite a bit about economics. Giffen goods and veblen are kind of at the opposite end of the spectrum but you get the same upward sloping demand effect. I should probably do a video and/or post on veblen goods.
Yes great idea @spectrumecons visual explanation always works. I will be looking forward for your video. ☻
You can also watch this video on YouTube using the following link:
This I an amazing concept of economics here, bring the concept of demand and want into concept, a giffen good as you say are not too common as sometimes we mistake giffen goods for normal goods, and this days the rate at which people earn is becoming lower, and I think this is basically the reason for the demand of giffen goods.
And I will say Gourmet sausages because these days it acts as an inferior food which people can uses to replace quality food when the money is lacking to buy good food.
It can come in handy and no matter how lowly your income is, you can still afford to get it.
And for me, the option D hence the answer for me
Thank you for providing such a good detailed explanation of your answers. I'll let you know later if your logic is correct.
Okay
My answers to the questions are:
B (wheat flour)
B (Good C is inferior, all others are normal)...........have a nice day@spectrumecons
With my little knowledge of economics in high school, am well aware of the fact that giffen goods are good for which demand increases as the price increases, and falls when the price decreases. And it is typically some set of inferior goods that does not have easily available substitutes. With my above assertion I'm able to infer that bananas are not giffen goods since I know like 6 substitutes for it, wheat flour still follows this philosopy but C (dominos pizza) does not have an easy substitutes and its not everyone food. So the price might increase according to demands from comsumers, wealthy ones.
Question 1 = C
Question 2 = D
despite the short video but many benefits, thanks friends.
I generally prefer to make quite short videos. It makes it easier to break the topics down without bogging people down with too much information. This video is about 13 minutes so it is not really that short.
thank you for sharing info of my friend .. and his vidio nice though short but many benefits that we can right from this friend vidio
Ok, the video is over 13 minutes it is not really that short. It is longer than most videos on the trending list.
yes friends .. I am very happy when you say my blog is my good friend yes
good friend
in my graduation , i read these terms in economics also
Do you understand them?
according to my level of education A Giffen good, in economic theory, is a good that is in greater demand as its price increases.
In my 2 cent opinions
Answers 1 = B Wheat Flour is a giffin good Wheat flower is essential for daily routine use although people don't like to eat wheat flour if the prices of wheat flour decreases people love to pizza, gourmet sausage or banana
for Answer 2 = D gourmet sausage is an inferior goods.
Thanks for your video tutorial.
Great economical background
Haven't heard of this term before.Now I seem to understand it better.
1)B Wheat flour. It's really cheap and also can be utilized in many ways.
2)C .
1)B
2)D
@spectrumecons
1.D.Gaurmet sausages
(So as per Giffen Goods defn good for which demand increases as the price increases.. Here price increases can be income increases..)
2.D
@spectrumecons
1.b.wheat flour
2.D
@spectrumecons
1.B
2.C
Not sure too much confusion...
At last of contest plzz explain us ri8 answer ty
The answer 1.a 2.d
Q1. A, likely to have negative income effect. Wheat flour is a close candidate but it's an input in luxury goods as well (gourmet pizzas etc) so income effect is ambiguous.
Q2. B, because good C is the only one with negative income effect.
Q1) A
Q2) B
question 1 : Gourmet sausages
question 2 : A And C ar inferior goods, B and D are Normal goods
Respuestas 1 (a)
Respuesta 2 (d)
Ahora quiero agregar algo, como sabes no soy economista, me cuesta entender el ingles, pero lo intento. Yo hice una pregunta en el post anterior sobre las curvas. Tenía que ver con la relación del precio y compra del maíz procesado y el maíz en granos. Aquí en mi país se ha visto ese cambio recientemente. Por lo que leo aquí creo que esta información se aplica mas a lo que yo quería saber ¿cierto? Ahora lo pienso porque justo donde vivo está pasando eso con las yucas (también llamadas mandiocas) en un tiempo se consideró algo inferior, pero ahora un hubo un cambio en su demanda y su precio aumentó mucho. Pero en este caso el aumento se debe a la falta de efectivo. ¿Cómo se trataría eso teóricamente desde el punto de vista de la teoría económica? ¿Se puede revertir? Espero hacerme entender... Saludos.
Thanks for the explanation of Giffen goods! My answer is B, B.
2)D
thanks friends, have shared the information, even though the video brush but its meaning solid