Giffen good

The classic example given by Marshall is of inferior quality staple foods, whose demand is driven by poverty that makes their purchasers unable to afford superior foodstuffs.

As Mr. Giffen has pointed out, a rise in the price of bread makes so large a drain on the resources of the poorer labouring families and raises the marginal utility of money to them so much that they are forced to curtail their consumption of meat and the more expensive farinaceous foods: and, bread being still the cheapest food which they can get and will take, they consume more, and not less of it.There are three necessary conditions for this situation to arise:[4] If precondition #1 is changed to "The goods in question must be so inferior that the income effect is greater than the substitution effect" then this list defines necessary and sufficient conditions.

At present, the consumer would purchase 2 loaves of bread and one cake, completely exhausting their budget to fill 3 meals each day.

A 2008 paper by Robert Jensen and Nolan Miller argued rice and wheat noodles were Giffen goods in parts of China.

[6] Another 2008 paper by the same authors experimentally demonstrated the existence of Giffen goods among people at the household level by directly subsidizing purchases of rice and wheat flour for extremely poor families.

In 1991, Battalio, Kagel, and Kogut published an article arguing that quinine water is a Giffen good for some lab rats.

Modern consumer behaviour research methods often deal in aggregates that average out income levels, and are too blunt an instrument to capture these specific situations.

Complicating the matter are the requirements that availability of substitutes be limited and that consumers be not so poor that they can only afford the inferior good.

[9] However, the theoretical distinction between the two types of analysis remains clear, and which one should apply to any actual case is an empirical matter.

Under such a situation, the supply curve will increase with the rise in potatoes’ price, which is consistent with the definition of Giffen good.

Charles Read has shown with quantitative evidence that bacon pigs showed Giffen-style behaviour during the Irish Famine, but that potatoes did not.

Schmuel Baruch and Yakar Kanai (2001) suggested that shochu, a Japanese distilled beverage, could be a Giffen good.

As shown by Hildenbrand's model, aggregate demand will not necessarily exhibit any Giffen behavior even when we assume the same preferences for each consumer, whose nominal wealth is uniformly distributed on an interval containing zero.