13 May, 2008

Giffen good v Luxury goods

I am grateful to DB at Bristol for reminding me about Giffen goods (and then proceeding to teach me what they were from scratch again as I'd forgotten!).

It's quite a useful piece of economic analysis and useful in debating.

So, here is an article on Giffen goods.

And for when you get them confused with luxury goods, here is the clarification of the difference!

Broadly speaking, a Giffen good is one where (contrary to normal economic behaviour), a rise in the price of the good in question causes a rise in demand. (see the rice example in the links above)

A luxury good is one where the demand increases when there is an increase in income. (organic, British, hand-knitted chickens. For example.)

3 comments:

Alex said...

Mmmm Jon was excited about that at Bristol too, but the Freakonomics blog tells me that Giffen goods pretty much don't exist... still, that shouldn't get in the way of a good debating argument!

Miss Middle of Manchester said...

I agree with Freakonomics, they hardly do exist. The situation with rice in China at the moment is the first known example of them.

The Irish potato famine has been speculated upon, but then there had actually been a massive fall in the supply of potatoes. With rice today, it's different.

Paul Temple said...

For the latest on Ireland in the famine see http://www.econsoc.hist.cam.ac.uk/docs/CWPESH%20number%2015%20May%202013.pdf
Apparently it was pigs not potatoes that were giffen inclined!