Qwiz5 Quizbowl Essentials – Giffen Goods

Giffen goods are kind of rebellious - they defy the basic laws of economics. Named for Scottish economist Robert Giffen, Giffen goods are low income, non-luxury products whose demand paradoxically increases with price. Giffen goods also have few or no close substitutes. But what, exactly, is a Giffen good?  Although the term “Giffen goods” has been in use since the late 19th century, economists still disagree over what constitutes a real-life example of a Giffen good. Read on if you want knowledge about Giffen goods and refuse to accept any substitutes!

By analyzing questions, you can see patterns emerge, patterns that will help you answer questions. Qwiz5 is all about those patterns. In each installment of Qwiz5, we take an answer line and look at its five most common clues. Here we explore five clues that will help you answer a tossup on Giffen goods.   

PRINCIPLES OF ECONOMICS

The economist Alfred Marshall proposed one of the first examples of a Giffen good in his book, Principles of Economics. First published in 1890, Principles of Economics argues that bread constitutes a Giffen good in situations where bread prices rise because people can’t afford to buy meat. However, this example was challenged by George Stigler in the 1940s, and is still under dispute. 

JENSEN AND MILLER

A more recent attempt at providing examples of Giffen goods took place in 2007. Harvard economists Robert Jensen and Nolan Miller conducted a field study examining the Giffen effect in two Chinese provinces: Hunan and Gansu. Giffen behavior was noted for rice in the Hunan Province, but the effect was less evident for wheat in Gansu.  

SUBSTITUTION EFFECT

The substitution effect refers to the way consumers change behavior when pricing changes.  For example, if Jif Peanut Butter rises in price, consumers might begin purchasing cheaper alternatives, like store brand peanut butter.  While this is a common result of price change, for Giffen goods the substitution effect does not occur. Instead, as the price of relatively inferior goods rises, their demand actually increases. Thus, Giffen goods have an upward-sloping demand curve. 

INCOME EFFECT

The income effect refers to changes in demand based on changes in an individual’s purchasing power. Typically, with greater income demand for higher-quality goods rises and demand for inferior goods falls. A negative income effect refers to situations in which demand for a good falls as income decreases--when consumers substitute lower-cost options when money is tight, for example. For normal goods the income and substitution effects reinforce each other. For Giffen goods, however, the negative income effect overwhelms the positive substitution effect. 

POTATOES

Another purported example of Giffen goods were potatoes during the Irish potato famine. However, economists are still in disagreement over the appropriateness of this example. One argument against this idea comes from Gerald Dywer and Cotton Lindsay, who argue that for a good to be a Giffen good, it must be replacing another “normal” good--after all, to be inferior means comparison to something else.  Potatoes, however, were already a mainstay of Irish peasants at the time of the potato famine, so they didn’t replace a normal good, and thus cannot be Giffen goods.

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Quizbowl is about learning, not rote memorization, so we encourage you to use this as a springboard for further reading rather than as an endpoint. Here are a few things to check out: 

• Although he may not enjoy the same name-recognition as Keynes or Smith, Alfred Marshall was a hugely influential economist. 

• Economists like to study lots of highly specific consumer behaviors and use them to make predictions about the economy as a whole. 

  
  

• The Veblen good is a close cousin of the Giffen good. 

• The notion of “inferior goods” is essential to the definition of Giffen goods. What exactly is an “inferior good?” 

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