Giffen Goods

MoneyBestPal Team
A type of inferior good, meaning that as its price increases, the quantity demanded also increases.

A Giffen good is an example of an inferior good in economics, which means that when its price rises, so does the demand for it. This goes against the law of demand, which stipulates that as a good's price rises, fewer people will buy it.

Scottish economist Sir Robert Giffen initially suggested the idea of a Giffen good in the late 19th century. Giffen noted that in some circumstances, despite the availability of substitute commodities, an increase in the price of a basic food item (such as bread) resulted in an increase in the quantity sought.

This phenomenon is explained by the fact that when the price of a staple food item rises, a consumer's budget may be impacted more significantly. In turn, this may result in a decline in the consumer's overall purchasing power, making it more challenging for them to afford other items. If it's a Giffen product, the buyer can be compelled to buy fewer other products and consume more of the inferior product (in this case, bread). The price and quantity of the good that is wanted increase as a result.

Giffen commodities are somewhat uncommon and are connected to items that are seen as essential or have a significant cultural or psychological impact. Since they are not frequently found in actual market circumstances, they are mostly of theoretical importance.