The Indiana Jones of Economics, Part I

A few years back the Wall Street Journal dubbed me the Indiana Jones of economics.

JensenRobert Jensen

In reality, that title more rightfully belongs to Robert Jensen, an economist at Brown University who is doing some of the most interesting and adventurous economics studies these days. Jensen has documented how cell phones revolutionized fish markets in India, how simply telling students in the Dominican Republic once about the high value of an additional year of school can impact their choices years later, and how introducing T.V. into rural India affects the position of women.

The real reason I call Jensen the Indiana Jones of economics is because of another paper he has written in which he and co-author Nolan Miller set out to find one of the elusive Holy Grails of economics: a Giffen good. A Giffen good is one where increasing the price for the exact same good actually leads people to buy more of the good. In economic terms, the price elasticity of such a good is positive, rather than negative. The way economists measure elasticities is often by looking at what is called an “arc elasticity.”

Jensen tells his story in three parts which we will post over the next three days, aptly entitled “Raiders of the Lost Arc Elasticity.”

Raiders of the Lost Arc Elasticity, Part I

By Robert Jensen

Several years ago, my colleague Nolan Miller and I set out on a thrilling adventure. OK, this being economics, both “thrilling” and “adventure” are relative terms. But, the story does involve the search for an elusive, fabled prize shrouded in mystery, travel to far-off lands, and the promise of immortality. We had set out to find a Giffen good, a journey we just recently completed.

So, what’s a Giffen good? It’s a (theoretical) violation of one of the most sacred and holy laws of economics: the Law of Demand. It has excited and intrigued economists for over a century, though no verified example had ever been found.

The Law of Demand says that if the price of a good goes up, the quantity demanded decreases. A Giffen good is one where when the price goes up, the quantity demanded increases. It’s named after Sir Robert Giffen, a 19th century British civil servant and economist who is believed to have first suggested the possibility.

How might this happen?

Imagine you are extremely poor, just barely able to afford enough to eat. And for simplicity, pretend there are only two foods: a basic, staple food like bread that gives you a lot of calories and fills your stomach at a relatively low cost, and a luxury food like meat, that tastes good (indulge me, vegetarians) or adds variety to your diet, but is very expensive, offering few calories per dollar.

So, if you’re really poor, you’ll eat a lot of bread to fill your stomach and get your calories — then with whatever money you have left over, you buy a bit of meat to make yourself happy.

You’re going merrily along like this, until the price of bread goes up. Now you can’t afford the same bundle of bread and meat you were buying before. You have two choices:

1. Eat less bread and more meat.
2. Eat more bread and less meat.

Actually, if you enjoy being alive, you really only have one choice: option two.

The problem with option one is that if you cut back on bread, you lose a lot of calories and a lot of bulk to fill your stomach. And because meat is so expensive, you get very few calories from the small amount you add to your diet. So, since you were just barely getting enough to eat before, you would end up with too few calories and a grumbling stomach. Eventually, you might even end up dead.

But if you instead cut back on meat and eat even more bread than before — while you may enjoy your diet less — you’ll at least get enough calories and fill your stomach. Really, you have little choice. So you break the Law of Demand: the price of bread goes up, and you end up eating more of it.

Anyone who has ever sat through introductory economics has probably heard about Giffen goods. Maybe you were told about potatoes during the Irish famine. If so, you were mislead. The potato example has been disproved.

The search for an alternative example has lead economists to explore crazy, far-out cases, like the demand for fermented whale bile among river-dwelling southern Kazoo from 1873 to 1875. But these searches always came up empty.

In fact, just a few years before his death, Nobel Laureate George Stigler wrote that the best proof that no Giffen good exists is that whoever found one would attain immortality (in the economics profession, anyway, which is one-half a step above being the most famous asphalt engineer) — and since this is such a great reward, people must have already looked everywhere for one.

Despite this declaration, we were determined to find the elusive Giffen good!

(Oh, the blog title. For technical reasons, the way you explore demand is through estimating an “elasticity,” which tells you how the quantity demanded changes when the price changes — all in percent terms.

In the Giffen case, where quantity demanded increases when price increases, you would have a positive price elasticity. And for even more technical reasons, you really want to estimate the “arc” price elasticity. Yes, a long way to go just for a bad pun).

So, to rephrase: We were determined to find the elusive positive arc price elasticity of demand!

Next time: Catastrophe strikes!

Leave A Comment

Comments are moderated and generally will be posted if they are on-topic and not abusive.

 

COMMENTS: 67


  1. Mark S Nadel says:

    I don’t follow you. I agree that an increase in the price of bread (i.e. calories) will increase the dollars you spend on bread, but not the total quantity of bread that you buy.

    I would expect that you would try to purchase THE SAME QUANTITY of bread as you previously purchased since it appears that you treat the bread as a quasi-necessity and the meat as a luxury item. If you have enough to purchase that same quantity of bread, you will be left with less money for meat and purchase less of that luxury good, but the same amount of bread.

    What am I missing?

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  2. Dan says:

    well you still need the same amount of calories in your diet, so if you are eating the same amount of bread and less meat you will be hungry. So you need to make up the calories you lost by cutting out the meat by buying more bread.

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  3. Bob says:

    Re: Mark

    Say you need 1000 calories to not starve. Say that bread is 100 calories a serving and meat is 25. When bread is cheap you might buy 9 servings of bread and 4 of meat.

    As the price of bread increases though, you might instead by 10 servings of bread and none of meat, since presumably the 1 serving of bread is cheaper than the 4 servings of meat. You cut the meat out of your diet to get the same amount of calories for cheaper.

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    • S. Basir says:

      So the point is that meat is a luxury or a variety. If the price of bread increases one may change the quality of meat bought, or buy a new luxury (variety).
      The calorie issue will fix itself because hunger is within proximal horizons.

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  4. frankenduf says:

    this one’s easy- the griffin good is water- in the silly american market, people ignored water until they were charged (more) for it- now every red blooded american drinks more water- but even on a grander scale, as water becomes more scarce globally, the price will go up, and consumption/expropriation by the wealthy countries will also go up in order to avert shortages/political turmoil

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  5. Andrew says:

    No, since you would have less money to spend on meat (which was expensive) you would have to make up for those lost calories as well. Which would mean you would have to purchase a little more bread. This is assuming you are keeping your total calories stable.

    Scenario 1:
    Bread = $1 and 10 Calories
    Meat = $3 and 5 Calories
    You have $10, so you buy 2 pieces of meat and 4 loaves of bread giving you a total of 50 calories.

    Scenario 2:
    Bread = $2 and 10 Calories
    Meat = $3 and 5 Calories.
    You still only have $10 and you still need to eat at least 50 calories. So you end up buying all bread in order to get to the 50 calories. You bread purchase went up and the meat went down.

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  6. Jakob says:

    Mark,

    While you’re keeping the same amount of bread, if you have less money left over for meat you also get less meat causing your total amount of calories to drop. Therefore to keep the total number of calories equal to before the price increase of bread you need to increase the amount of bread => buying more bread when price increases.

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  7. Josh says:

    After reading the blog and the first 10 pages of the actual article linked above, I have to agree with Mark above that something is missing. Why would he increase his consumption of bread? Wouldn’t the poor person just increase their spending on bread?

    The only thing I can think of is that since meat is so expensive, that with his remaining money in the new market he can no longer afford any sizable amount of meat, so he just buys more bread with the remaining money.

    What’s the answer?

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  8. Scott says:

    It isn’t that you would have to eat more bread quantity wise just more as a percentage of your diet. If you had $50, and before you would buy $35 for bread and $15 for meat, and the price of bread went up 14%, you would now spend $40 on bread and $10 on meat. Although the amount of bread is the same, 70% of your diet was bread before but it has increased to 80% of your diet after the raised price.

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  9. Matt says:

    @Mark:

    Imagine bread costs $1 for 1000 calories and meat costs $1 for 100 calories. Then suppose you have $3/day to spend on food. (This is all incredibly oversimplified, but the idea is that there is a unit cost for bread. You can’t buy just one piece, but rather you need to buy a loaf.)

    You can live off of 2,100 calories, spending the $3 on 2 parts bread and 1 part meat.

    Then, the price of bread goes up to $1.35 for 1000 calories. Perhaps a bread competitor decides to fill a void by offering a $1/800 calorie alternative.

    Now you could spend $2.70 on the original bread, leaving you starving but with $.30 left over and no food options, or you can spend all $3 on bread, get 2400 calories and survive on the Giffen Good.

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  10. HS says:

    This seems easy to any high-end (woman) shopper: go look at Hermes purses as one example. No one wants the $2000 purse but everyone wants the $16k purse. There are more examples: Louis Vuitton bags, Lanvin shoes, Dior dresses. All of these high-end products have lesser priced products but the high-end shopper does not want the cheaper product (made by the same manufacturer) — s/he wants only the pricier product merely because it is pricier. May not make sense but sure looks good.

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  11. GLK says:

    Years ago I knew a guy that was trying unsuccessfully to sell an old beat-up Porsche. He was at the point that he was considering giving it away. I told him to double his original asking price. The car sold in a week.

    Years later when I was in business for myself I mistakenly quoted a customer my cost for an item and he, thankfully for me, walked away from the deal of the century.

    Conversely, I’ve seen people militantly defend paying too much.

    Let’s face it “Brand Building” is all about the ability to motivate customers to willingly pay more.

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  12. jw says:

    I am not sure that water is a griffin good… in a history channel program I recall the description of the rise and fall of the bottled water industry at the turn of the century. At its peak, 1905, a bottle ruffly equivalent to 750 ml was approximately $25 in todays dollars. If that is true we have a way to go on water to reclaim its old high. I was under the impression that illegal addictive drugs were griffin goods. And how is vodka and tequila not considered griffin goods?

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  13. Mark says:

    I have to say that I am impressed that someone found a Giffen good. That it is a staple food does not suprise me. However, I wonder what makes wheat and rice in China different from other staple foods in poor areas. Is it Chinese urbanization? Is it a tight international market? How long a period of time does the data cover?

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  14. AaronS says:

    I think a stock or commodity can be a type of “Giffen good,” at least for period of time. For example, as the price of a stock or commodity rises, sometimes demand for it increases, because people think that there is money to be made.

    And this can go on for some time–witness the price of gold. There’s no shortage of gold that I know of–it’s just the old, “if oil goes up, gold goes up” routine. More and more people, afraid of missing the boat, buy in, and the price keeps going up.

    A Giffen good? I don’t know, maybe.

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  15. TR says:

    I thought an example of the Griffin Good case was a type of beer that when priced the same as others had low demand, but when the price was increased demand increased because people saw it as a high-end product?

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  16. Daniel says:

    The real challenge in finding a Giffin good isn’t finding a good where the price rises and consumption goes up — there are plenty of examples of that. The real trick is to find a good for which the price rises and *all else equal* consumption goes up.

    If there’s an outbreak of a particular disease, likely the price of the vaccene would go up, and so would quantity demanded, but that doesn’t make it a Giffin good. If a band becomes popular, tickets to their concerts become more expensive, and the number of tickets sold rises. Clearly that wouldn’t count as a Giffin good.

    But what about a context of imperfect information where consumers use price as information about product quality? If the price of a good drops dramatically, and consumers buy less of the good because they assume if the price went down so much, there must be something wrong with the priduct? The only thing that changed is price, but the mechanism is quite different than what Giffin envisioned. Would that be a Giffin good?

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  17. Seth Roberts says:

    In the bread & meat example, the property of {price goes up, buy more} is due to the whole situation, not just the bread. To call the bread a Giffen Good makes the bread sound special. It’s the whole situation that has this special property. It would be more accurate to refer to a Giffen Basket (of goods).

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  18. Mike says:

    I think HS is onto something. I’ve always wanted to do a study of the price elasticity in high-end clubs and strip clubs – the kinds where the clientele are on expense accounts entertaining clients. Or LV casinos. I believe that INCREASING the price of a bottle of liquor or champagne, for instance, on the drink menu, can actually INCREASE demand for that. In these situations, often times the APPEARANCES are what is being payed for, not the liquids themselves, so the same bottle can actually be more desirable at $1000 than at $500. Are there any studies of this kind, and is this a Geffen good?

    Anybody? Mrs. Levin, Dubner, and Jensen?

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  19. Ryan says:

    Seems like housing in the U.S. was a Giffen Good during the bubble expansion, at least in certain markets. As prices rose, more people wanted in on it a “can’t lose” investment, increasing demand, increasing prices…

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  20. Christopher says:

    Aren’t there many examples of products being re-branded as luxury items (requiring an increase- sometimes large- in price)… and successfully selling more?

    There has to be some sort of designer purse that was, say, selling for $10. Then the manufacturer (through demand or as a marketing gimmick) raises the price to $100 and sells more.

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  21. LBM says:

    If the perception of value (purses mentioned earlier) count as a Giffen Good, there are plenty of examples. Mazda Miatas, in the first year, were scarce, and sold for more than sticker price. So what other property is necessary to make something a Giffen Good?

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  22. Jurgen says:

    I’m not an economist and didn’t know about Giffen goods until I read this blog post but I did already understand the concept.
    I think you get Giffen goods whenever a customer is incapable of determining the quality of a good by looking at it.
    My favorite example of this is locks. Only an expert can tell from the outside whether a given lock would be susceptible to lock picking, normal consumers can’t. In the absence of this knowledge the consumer falls back to a basic quality assumption: You get what you pay for. The belief that products that are expensive are of high quality (which is based on the assumption that high quality would be expensive to produce and therefore require a higher price). Other products where I would expect the same effect are clothes, alcohol, prostitution and jewelry.

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  23. SBG says:

    In my introductory mico class, we were given the example of tennis lessons. An instructor wouldn’t get customers when he charged $15.00 per hour, but would get plenty when he charged $50.00 per hour. Buyers thought that such a low price was probably a sign of poor quality.

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  24. David says:

    I’m not an economist, either. However, pretty much everyone on this blog seems to be confused about the definition of what a giffen good is. The key element is that the product in question has to be an “inferior good” not a “normal good”. It is true that for certain luxury items (eg. Liquor in bars) people may buy more if the prices are raised, however, it is also true that people will buy more luxury items as their income rises. This is the definition of a “normal good”. As income increases more of the good is demanded. An inferior good is where the opposite occurs. As income rises people will begin to substitute other products for that inferior good. So, in the this blog, bread is an inferior good, because as income increases meat becomes more desirable and bread becomes less. If the supply and demand curves are correct then people will buy less of an “inferior good” if the prices are increased. The key here is that if bread is such an important part of the diet then people will be forced to buy more of the good even though the prices have been increased because they can no longer afford to substitute it with anything else.

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  25. Graham J. says:

    I’m a freshman Economics undergrad in college, I also recently tried to find a Giffen Good. I’ve created a rough draft of what could be a scenario of a Giffen Good, and I welcome criticism and comments:

    Suppose we have a person, Jack, that must choose between buying two goods: garbage (x) and everything else (y). For given prices of each, and given his income, Jack chooses an optimal bundle of these two goods where his utility is highest.

    Now suppose that Jack’s income (that affects his decision of choosing these two goods) comes from an outside source; he is completely disconneted from the actual work that goes into generating this income. Somehow, Jack has been able to generate his income by stealing assets unknowingly from his sworn enemy, Jill (this could done because Jack is using a computer virus that siphons money not unlike the one used in “Office Space”).

    Jack dislikes Jill so much, that he gains utility from buying the garbage and placing it on Jill’s front yard in the middle of the night. Additionally, the fact that he is spending Jill’s money and making her worse off, gives Jack additional utility (z) for each of Jill’s dollars spent. However, if Jack was using his own money to finance his late night escapades, this additional, outside utility varaible would be non-existant (z=0). The fact that the money was once Jill’s is a huge factor for Jack’s ultilty: he dislikes her so much that he gains ulitity just by seeing the funds spent to harm her.

    Therefore, it is feasible that if the price of garbage (x) goes up, Jack will choose to consume more garbage, instead of less, because he gains more utility in seeing Jill’s assets deplete faster while continuing to put more and more garbage on her front lawn.

    It is most likely that garbage will only be a Giffen good for a small or local time period in Jack’s demand schedule, becuase more and more
    garbage bought will be harder and harder to transport to Jill’s house, and he will increase his chances of being caught in the act. He will also have to spend more of Jill’s assets on everything else (y) so as to finance the garabage dumping: more trucks, more labor, and more ski-masks.

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  26. Pablo says:

    Here in Argentine we have free public schools and non-free private schools. In a poor neiborhood, a cheap private school can have more customers if increases (a little bit) the price, because not-so-poor fathers think that will keep the poorest kids away. Is not a perfect Giffen good, because if the price keeps increasing people will send kids to public schools, but I think it works like a Giffen good in a limited range of prices. Am I rigth?

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  27. Libin Z. says:

    I think people are confusing Giffen goods with Veblen goods. The examples of fancy champagne and high end bars are Veblen goods. For those products, increasing the price changes the value of the good, so it doesn’t count as a Giffen good (which assumes that the nature of the good itself does not change).
    For the bread example as a Giffen good, the higher cost of the bread does not change the nature of the bread to make it more desirable (actual shift in demand curve).

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  28. Michael says:

    Tim Harford (The Logic of Life) has discovered a Giffen good, albeit not with humans. Rats given a chance to buy two goods to drink (quinine or root beer) picked a certain ratio in order to survive. They clearly preferred the root beer to the quinine water. When the price of quinine went up (rats, of course, did not have money but operated on the understanding that the behavioral economists would set the prices relative to one another) they actually consumed more. Why?

    The essentialized example that I have developed is this; suppose rats (or humans) need 10 units of liquid a day. The price of quinine is .50 c, while the price of root beer is 3 times that, 1.50. A rat might consume 5 units of quinine and 5 units of root beer, totaling their 10 units. Imagine the price of quinine doubled, to $1. A rat, to survive, must consume 10 units of quinine and no root beer. Thus, a Giffen good.

    This was proven in the lab. This is, however, a two-good world. A Giffen good would only work in a scenario where all the substitutes are linked in price except for the good facing price changes.

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  29. Doug B says:

    Most of the innacurate descriptions above are describing Veblen goods, not Giffen goods. Check the Wikipedia link in the original story to see the difference.

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  30. Mike says:

    Thanks, David. Neither definition in the original post defined Giffen Goods as “inferior” though the example given does represent that. I retract my earlier suggestion ( #18) that liquor bottles may be Giffen Goods, though I do think it’s still a case of negative price elasticity in that the rising price is the only thing driving up the demand in certain places.

    What I find most interesting about my example, even though I now see it’s off-topic, is that you may have a known quality of the goods, but their utility is actually limited by their price. For example, let’s say I know I favor a certain bottle of alcohol, and I know that people such as those who I am entertaining have enjoyed the taste of it in the past. I might still decide NOT to purchase it if the price is too low because I don’t want to be seen buying a cheap bottle. So I buy a more expensive bottle that I like less. Contrast this with the lock or tennis instructor examples where price becomes a proxy for quality. In my example, I would KNOWINGLY pay more for a known decrease in quality because the price IS the utility. These are not Veblen goods, because it’s not perceived quality I am paying for, but literally paying for price itself. What do economic studies say about this?

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  31. SM says:

    This is very interesting in light of the recent increases in price of rice worldwide. I am curious whether Mr Jensen has been able to monitor the consumer reactions recently, which would be able to further confirm his identification of Giffen Goods.

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  32. Alexandre V. B. Netto says:

    No, the way the narrative was told we were lead to think that the amount of bread he consumed before was already sufficient to sustain him, so this amount alone would suffice to keep him alive. If you are not convinced yet, read again this paragraph: “So, if you’re really poor, you’ll eat a lot of bread to fill your stomach and get your calories – then with whatever money you have left over, you buy a bit of meat to make yourself happy.”

    So i don’t see this guy eating more bread after price rises. He would demand the same quantity of bread (i.e. the quantity necessary to sustain him) and less meat.

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  33. Scott says:

    I think the Eliot Spitzer scandal has shown us a strong example of a Giffen Good.

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  34. Jonathan Rees says:

    What about tuition at Bennington?

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  35. Will says:

    I read an article about a small liberal arts college, somewhere on the east coast last year that may be a decent example (I’m an engineer, not an economist).

    This college suffered from low applications and conducted a study on schools this college thought they were comparable to. One of their findings was a wide difference in price. This college was significantly cheaper – $10,000 – than it’s presumed peers. The next year they raised tuition for incoming students to more closely resemble the schools comprising the study. Surprisingly enough, the school saw a huge spike in applications, perhaps 30%. I don’t remember the data exactly, but I spent half an hour searching for the article to no avail.

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  36. BK says:

    baseball cards?

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  37. Marsello says:

    It’s called “takeaway selling” in marketing, the point when demand is so high that raising prices would not deter consumers at all, well until a certain threshold of course.

    http://www.feedbacksecrets.com

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  38. Mike says:

    Frankenduf,

    If water is considered a normal good, and incomes are assumed to have been increased on average across the US, then the increased demand for bottled water could be due to rising incomes, and would be reflected in a positive income elasticity rather than a positive price elasticity. It could also be a combination of the two.

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  39. Eric says:

    If the cost of a seat in a corporate box at a sporting event is increased, then it’s not just “it must be better because it’s more expensive” (as in other examples) but the consumer may think he will have better company in the corporate box.

    It’s the same principle as the school in Argentina. Or a neighbourhood with high prices, buyers might think they’ll get better neighbours.

    Another possibility is if money paid is going to a charity – people may attend a show where most of the takings are going to charity.

    Time to check what Wikipedia has to say.

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  40. Eric says:

    The wiki article suggested it was only in the case of an inferior good, like the bread and meat.

    Another example I can think of in that style, if you replace time with money. If I like to drive some of the way to work and walk the rest of the way, and my car becomes slower (higher time cost to travel the same distance) I might have to drive all the way to work to arrive on time.

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  41. Daniel says:

    The article talks about looking for Giffen goods amoung necessities like the bread/meat example. I would look for a Giffen good in frivilous luxury items.

    1.Diamonds – The more they cost, the more people buy them in order to show off. Are diamonds disqualified because the supply is manipulated by a cartel? In that case…

    2.Handbags – Not the practical ones that most of our wives and girlfriends own. I’m talking about the latest high fashion accessory by the top designer seen on the arms of Hollywood stars. These things are not popular because they do a better job helping the owner carry around her makeup. They are popular because they are expensive and the more expensive they are, the more people want to buy them.

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  42. Rob says:

    Years ago my fraternity ran a fireworks stand to raise money for a charitable cause. There were three “fountains” that were identical in wholesale price and, presumably, quality. The wrappers were all different colors. We would pick one color and charge $.25 more for it. We always sold more of the more expensive color even though the quality was the same. Is that what we are discussing here?

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  43. David Heigham says:

    To my surprise, I think that I have a case of a Giffen good in my household.

    We have two automobiles. One has a diesel engine and one a gasoline engine. Driving the one with the diesel engine is – marginally – a less comfortable experience than driving the one with the gasoline engine. I.e., diesel is for us an inferior good.

    Oil prices have risen in general. However diesel prices have riden more sharply than gasoline prices. We drive about the same aggregate distance, but choose to use the diesel vehicle more often than before because the greater distance per unit of fuel achieved with diesel means that using the diesel car minmizes our total travel expenditure.

    For us, therefore diesel fuel is a Giffen good, at least relative to gasoline, at least over this band of relative prices, at least until we change automobiles.

    As to when you can get away with marketing something as a Veblen good, look at “When do Higher Prices Increase Demand?” , Thomas Morwitz and Lodish, January 2004.

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  44. Alexandre says:

    Just another thing to point out here, is that a Giffen good is necessarily an inferior good (when income increases, demand declines) with another requisite: the income effect is bigger than the substitution effect.

    In the text example it means that the decrease in purchase power (resulting from the increase in bread prices) offsets the willingness to swap toward meat consumption resulting from the change in relative prices.

    I guess part 2/3 will explain this in a friendlier way.

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  45. Doug B says:

    This seems to me to be a clearer example: I have $50 per week to spend on dinner. 6 days/week I eat McDonald’s at $5 per meal, so that on the 7th day, I can treat myself to a better meal (e.g., TGIFriday’s?) for $20. For sake of simplicity, say these are my only 2 choices for food.

    If McDonald’s raises their prices so that my dinner now costs $7, I would then have to eat at McDonald’s all 7 days of the week, because I would no longer have enough money to eat one nicer meal. (Feeling sort of queasy just thinking about it…)

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  46. Jeff says:

    Mark -

    Really? For the love.

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  47. kip says:

    Well this is anecdotal, but Joel Spolsky (owner of a software company in NYC) has said that the single biggest thing he did to boost sales of their software was to raise the price. He attributes it to people believing “you get what you pay for.” I can’t seem to find the article on his blog where he said this though, but he does give one example in another post I found:

    The only reason we assumed that the demand curve is downward sloping is that we assumed things like “if Freddy is willing to buy a pair of sneakers for $130, he is certainly willing to buy those same sneakers for $20.” Right? Ha! Not if Freddy is an American teenager! American teenagers would not be caught dead in $20 sneakers. It’s, like, um, the death penalty? if you are wearing sneakers? that only cost $20 a pair? in school?

    That’s from the very end of this post: http://www.joelonsoftware.com/articles/CamelsandRubberDuckies.html

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  48. janpi says:

    I was under the impression that illegal addictive drugs were griffin goods. In Italy we have the first food in the world but isn’t more expensive and haven’t more colories

    http://www.radioboville.blogspot.com

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  49. jacob says:

    I don’t buy the logic of the bread and meat example. If someone is so poor that they only buy bread and meat then raising the price of bread should be equivalent to cutting their income or raising all food prices.

    Shouldn’t a Giffin good apply regardless of income level. Isn’t the distinguishing characteristic that price goes up with all else being equal.

    And by extension would a “middle class” family buy more meat in this example?

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  50. Emmanuel M says:

    Doesn’t petrol follow this quality ? It seems that a Giffen good is a good that competes for budget with higher qualities.

    You have a two products market : petrol and housing. On certain areas (including most european cities), the price of housing goes down as you go farther from downtown. So if you cut on housing, you’ll have to commute longer AND SPEND MORE PETROL.

    If petrol rises, you ‘ll have less disposable income. So you’ll have to cut on housing expenses, therefore moving further away from your job, commuting more and consuming more petrol.

    Aother Giffen good might be banking services. What is named in french “frais de decouvert”. Those are the fees that you bank charges you for financial services (money lending, file processing) when you have a negative account. If the fee gets harsher,you’ll spend more money on them so you will have less money to cover your expenses so you are more likely to go in the negative next month … and spend more on banking fees.

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  51. Jay says:

    Is the motive what establishes a Giffin good, or simply price demand? Does this NYT story from 2006 regarding tuition prices count?

    http://www.nytimes.com/2006/12/12/education/12tuition.html

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  52. Imad Qureshi says:

    This is not even close to convincing. Jensen is ignoring the fact that bread in this case has inelastic demand. Price of bread going up in this case may very well increase the price of meat too because in his two food simple world meat is the closest substitute.
    Let me give you another example. Imagine you are lost in a desert with some water. You estimate you would survive 3 weeks with this water while drinking couple of ounces each day. After two days you run into a man who is lost just like you but has some Pizza. He would trade some of his pizza for your water. To increase the quality of your remaining life you will trade some of your water with his Pizza although now you would die early.

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    • George Gacua Kimani says:

      I agree with you Imad Qureshi , a substitute(a temporary replacement) will as well lead to increase meat price. So should look for alternative though you will die sooner.

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  53. mark says:

    Interestingly enough I was watching a documentary on the history channel about interpols involvement with bringing down the global market of esctasy. It seemed to suggest when the availability and price of the pill went up so did the demand. Of course the narrator and writers of the show may not have known what they were talking about but it caught my attention.

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  54. T Phiri says:

    Your underlying assumption is that this is a two-good market because if there are alternatives close enough to meat, which there are, then the man could still consume the same quantity of bread, less of meat and and add third food x or eliminate meat altogether and just buy food x which is just as tasty or close.

    I see now that the assumption is that this is not a real world scenario.

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  55. ablokussmail@gmail.com says:

    I think that it is obvious that bread is a staple food and more affordable by people compared with fish. Taking this obvious argument to justify the Giffen good is problematic because whatever the prize of staple food people will continue buying them. my suggestion is that the comparison should be based on two things that belongs to the same types of demand. for instance: bread and rice.

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  56. Elías Andrés says:

    When I hear about Giffen goods, I have always thought that expectations of future price increases can push present demand, in a moment when prices have already gone up for a first time.

    It may be because of perceived future scarcity, for instance, or simply because of speculation (in a housing-bubble fashion).

    I am not sure if the inter-temporal dimension is considered within the concept of Giffen good, but I think it is crucial to understanding this particular relationship between prices and quantities demanded.

    As a Venezuelan, I see daily a possible example of a Giffen good: the US dollar sold in the black market. As this “parallel” exchange rate goes up, investors, importers and all the other agents increase their present demand because they expect the US dollar price to continue growing.

    Am I misunderstanding the whole point of Giffen goods?

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  57. Stephanie Manosalvas says:

    In this case we need a subsidy from the government if bread prices really go up, because we need to eat a certain amount of calories but if there is not any subsidy soon we couldnt afford to buy the same amount of bread to complete our diary calories and we would stop eating the calories we need and perish. The only option left is to stop buying meat to supplement the amount of calories we need per day buying more bread, but we couldnt satisfied our necesity for meal.

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  58. Dukundane Gatera Lilinae says:

    the consumer will take more bread because in bread he might find more calories needed for his body and his stamach fills. Eventhought he doesn’t take any meat, he might survivor but he will take less meat just for enjoying his meal.

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  59. Obiora Felix says:

    Increase in price attracting increase in demand should mean that the quantity of bread consumed will increase as the price changes upwards. In other words, bread being a giffen good will mean that if one consumes a loaf of bread at a price of $2, as the price increases to $3, then that should make the consumer purchase 2 or more loaves of bread than that purchased when the price was cheaper, remember that quantity increases in most cases when price decreases. In Nigeria where I come from, an increase in fuel pump price attracts people to buy more fuel and hoard at home because they believe that a reason for fuel pump price to increase is scarcity of fuel. In Nigeria electricity is not sufficiently supplied and is never steady nor trusted to last a whole day, in order not to stay out of business, Nigerians purchase fuel for their electricity generators. No wonder the fear of scarcity of fuel will attract the purchase of a higher quantity of litters in order to guarantee that business continues when the fuel eventually becomes scarce or not available.

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  60. Dinu Varghese says:

    Economics is a science , but it becomes worthy when it collaborates to other sciences and notions . For instance , there are plenty of cheap edible stuffs which could easily contribute similar nutritional qualities like meat . So , what we do need is an ultimate solution . ” Giffen good” in not mandatory situation its just like a life style disorder . If we are careful and responsible such things wont take place. Human beings are responsible a lot of things , when he fails to maintain it , it ends up in global warming , Giffen good, Wars and so on….
    A global campaign is has become mandatory on the need of small scale farming ( Agriculture), Environmental management , Domestic production and consumption etc,.

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  61. Pascal Leena says:

    First of all, it’s great to know that Economics can be such an adventure and thrilling all the way!!, my college economics was so dry and boring. Steve, you have just injected so much humour into an otherwise mundane topic of a rubberband, that it actually demands one to visualise the concept from a lived-world perspective – i find it truly amazing.

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  62. Udom Aniefon says:

    The Giffen theory is possible only in the following circumstances: when there is a hike in the price of gas or fuel people purchase more of this product because of apprehensive scarcity. This product are stored not used, this does not in anyway make the buyers to use more than expected. The second case scenario is during a natural disaster like drought, war or flood people still tend to consume the same amount of food, they also buy with disregard for hike in price e.g staple food like cassava flower “garri” . I would subscribe to the theory of high in price and increase in quantity demanded based on circumstantial purchase and not need based purchase. ( case study Nigeria in West Africa)

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  63. Adrian Contreras Rodriguez says:

    ln my opinion people eat tortillas, and rice as fillings. Rice is used as a filler in many restaurantes. lncluding the mayor part of the asiatic restaurants. Such as the japanese restaurantes. Central america restaurants use tortillas as fillers. You buy one thing for another that`s the main idea.

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  64. Kadidia V. Doumbia says:

    The price is going up when people buy more of a good.
    That can happen when there is a fear to not get the product that everybody wants before it disappears for good. Otherwise, people will wait to get it at a lower price.

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  65. Leseo says:

    Well, based on the definition of Giffen goods, I think houses in China’s present house marked is a Giffen good; based on the transaction history of houses of past few years, the price of houses have a crazy raises which still is going now, but the transaction quantity also increased accordingly; and now more and more people especially young people have the trend to buy a house for their future. Why we have this Giffen good? I guess that’s because we have too many people in our country and few house resource, and more impotent we have traditional home concept.

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