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Giffen Goods: Definition, Examples & Demand Curve Video

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  • 0:03 Definition of Giffen Goods
  • 0:49 The Demand Curve
  • 1:26 Conditions for a Giffen Good
  • 2:07 Examples of Giffen Goods
  • 3:50 Lesson Summary
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Lesson Transcript
Instructor: Yuanxin (Amy) Yang Alcocer

Amy has a master's degree in secondary education and has taught math at a public charter high school.

Believe it or not, there have been a couple of products in the world that have experienced increased demand with increased price. Learn how this happens in this lesson.

Definition of Giffen Goods

If you saw a food item on the shelf on Monday that was a dollar a piece, you might buy one. On Tuesday, if you saw it was now two dollars, can you imagine yourself actually buying more? This scenario exists!

Believe it or not, a Giffen good is one of those freak products from economics class where the demand for the product rises when the price of the product also rises. This goes against the law of demand, which is a downward curve where the demand for the product decreases with increasing price. Giffen goods are inferior or basic products, not any kind of luxury item. As strange as it sounds, there are real world examples of Giffen goods, as you will hear about in this lesson.

The Demand Curve

When a Giffen good is involved, this downward curve becomes an upward curve like this:


giffen good


The y axis is demand; the x axis is price. You can see that as you travel to the right on the graph (your price getting higher), the demand for the product increases (your graph goes upward).

Just think, if you created a Giffen good, all you would have to do is to increase your price and all of a sudden more people would purchase your product. Your profits would rise substantially. For most products in the economic world, if you raise your prices, demand for your product would decrease.

Conditions for a Giffen Good

But, there is a catch. Not all products turn in to Giffen goods. A product can become a Giffen good only when certain conditions are met. What are these conditions?

  1. The product must be a staple product such as food that has a limited number of substitutions available. For example, cheap rice doesn't have that many available substitutions in its price range. Quinoa is more expensive, so that can't be a substitute.

  2. The customers must be poor enough that they can't afford to substitute the staple product for higher quality products. This means that the poor customers have to choose the staple product.

Examples of Giffen Goods

You might think that such a product can't possibly be real, but there have actually been two real notable Giffen goods in the world.

Potatoes

An old example is of the famous Irish potato famine of the 1800s. The two conditions for a Giffen good were met. First, there weren't that many substitutes for cheap potatoes. Second, the people didn't have enough money to purchase more expensive items. So, as the price of potatoes went up, the poor didn't have money to purchase other things like meat, so they had to purchase more potatoes just to get full.

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