Giffen Goods

Giffen Goods Assignment Help

Giffen Goods

A class of goods where direct price- demand relationship is observed, and thus they constitute an exception to the law of demand, is the case of Giffen goods. Sir Robert Giffen, from his observation of the behavior of the low paid British workers in the 19th century found out that when the price of bread was high, people bought more of it rather than buying a lower quantity. This is contrary to the law of demand. The reason for such behavior was that these low paid workers primarily consumed bread with a small quantity of meat, relatively more expensive item. Which was a relatively more expensive item when the price of bread went up, they were compelled to spend more on the same quantity of bread and were hence left with much less money to buy that quantity of meat that they were consuming earlier. This reduction in the intake of meat was thus sought to be compensated by buying a little extra bread and hence the demand for bread went up at a higher price. Now if the price of bread were to fall, people would thus cause a reduction in the demand for bread. A similar behavior pattern can be observed in the case of poor people in India who may be using coarse grains such as barley with some amount of wheat in their food. If price of barley falls, they would save some money to buy some extra wheat to use it in place of barley. Thus, at a lower price, the demand for barley would fall, while at a higher price its demand may go up.


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