What are Giffen products
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Video: Meaning of Giffen Goods 2024, July
Giffen goods are a certain group of goods, with an increase in the value of which their consumption does not decrease. These products are often low-cost and do not belong to luxury goods. Since they do not have equivalent substitutes, people cannot refuse to consume them.
Giffen's Paradox
The consumption of Giffen goods does not decrease even with a significant increase in their value. People continue to consume in previous quantities, creating austerity on other products and essential goods.
The Giffen paradox is an exception to the law on demand. The English economist Robert Giffen concluded that during the mid-19th century Irish famine, potatoes, which were the staple food of the poor, increased significantly in price. But consumer demand for it did not fall, people, saving on other necessary goods, continued to buy it, saving themselves from hunger. The economist believed that the cost of potatoes in the budget of the poor occupied a considerable share, which contributed to the growth of the demand curve for it.
The Giffen effect is often just a reaction of buyers to the current political or economic situation at the moment and its distribution to goods that are in special demand.
Giffen's goods, as a rule, occupy a large percentage in the budget of consumers, while having a very low quality. The increase in price does not affect their consumption. At the same time, an increase in the population’s income makes it possible to acquire other, better substitute goods and reduce the consumption of vitally necessary cheap, low-quality goods. The substitution effect of these goods should be suppressed by the income effect. That is, with the low quality of the product and an increase in its value, the effect of income will prevail over the effect of its replacement, with the rapidly growing demand for it.
Some economists question the existence of the Giffen product as such. But, despite this, many Western economic aids still describe this effect. In developed industrial countries, the Giffen effect is very rare.
