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From the wikipedia article I gather that the only Giffen goods that were actually shown to exist are the Veblen goods and thus disqualify as Giffen goods. It se

by yoz-y 10y ago

From the wikipedia article I gather that the only Giffen goods that were actually shown to exist are the Veblen goods and thus disqualify as Giffen goods. It seems to me that Giffen goods are a theoretical thing that has never been actually shown in real world (as the article states, all of the proposed examples were discarded). The case of website cost going down and demand going up seems pretty standard.

lmm 10y ago
How are you distinguishing between Giffen and Veblen goods? If you define Veblen in such a way that all Giffen goods are Veblen and then say that disqualifies them then of course you'll find there are no Giffen goods.
- yoz-y 10y ago
  According to the article: > To be a true Giffen good, the good's price must be the only thing that changes to produce a change in quantity demanded. A Giffen good should not be confused with products bought as status symbols or for conspicuous consumption (Veblen goods) Veblen goods = Goods for which demand rises with price because they are status symbols Giffen = Goods for which demand rises with price - Veblen Goods However there are no examples there that hold, to me this signifies that the only goods for which the law of demand does not apply are status symbols.
  - JangoSteve 10y ago
    Isn't a Giffen good then just something where one infers quality from price? I've seen that happen many times with my own eyes, so hard to believe they've never been identified. It's possible to price something so cheap, people assume there's a catch.
    - chimeracoder 10y ago
      > Isn't a Giffen good then just something where one infers quality from price? No, it's an inferior good (in the economic sense) in which the (negative) income effect of a price increase outweighs the success substitution effect. What you are describing is a good that has a positive elasticity of demand with respect to income (or, technically, two different goods, because the higher price represents a different good altogether - one with a higher status symbol).
    - lil_cain 10y ago
      No. The example of a giffen good given is a high calorie food, that's exceptionally low status. Thus, when its price falls, people will demand less of it, as they can afford to replace some of their consumption of that food with more expensive, better food. Workers replacing some proportion of their bread or potato intake with meat, as the price of that bread or potato intake drops, say. The idea is that the good is the lowest quality way of fulfilling some need - so people buy it because they can't afford anything else.
beefield 10y ago
> It seems to me that Giffen goods are a theoretical thing that has never been actually shown in real world In practical terms (that may not fill the theoretical definition of the giffen good), spare time in certain circumstances is quite obviously a Giffen good. Once your income increases (which means the opportunity cost of your spare time increases), you are willing to work less, i.e. consume more spare time. Of course, this is not a universal rule, but I think it is obvious that for _many_ people this is the case. If it was _not_ the case, there was no way people in sweatshops work longer hours than western middle class.
gpawl 10y ago
Giffen goods are likely to exist only in communities of extreme poverty, where the cheapest things you buy dominate your spending. That's why it was only found in an experiment performed on people living on subsistence: https://en.wikipedia.org/wiki/Giffen_good#cite_note-4 https://en.wikipedia.org/wiki/Giffen_good#cite_note-4 I bet you could find it in some video game economies.
dsacco 10y ago
You didn't prove that giffen goods are equivalent with veblen goods, there. If a package of ribeye steak normally sells for $2.99 and doesn't sell well, but then its price changes to $6.99 (but nothing else changes), and demand increases, that steak is a giffen good. The ribeye steak is not conspicuous consumption (unless your definition of status is really loose and includes posting photos of your food to Instagram). What happened there is straightforward: there's an elastic demand for ribeye steak, people saw the price and assumed quality signaling. When it increased to price parity with higher end brands, people assumed quality parity as well. Conversely, a mechanical watch is specifically optimized to be good at time keeping in the most functional and cost inefficient ways (e.g. assembled in hand in a white gold case with a hand-decorated guilloche dial and proprietary in-house movement mechanisms, etc). That is precisely conspicuous consumption, and thus it's a veblen good. One good's demand increases because of quality signaling, the other good's demand increases due to status signaling. The point of there being two of these definitions is the nuance in why consumers would purchase luxury items. Theoretically, people don't buy at Trader Joe's just to brag to their upper class friends that they shop at Trader Joe's (this is not a good example but take away a specific brand and you get the gist).
- ikeboy 10y ago
  The steak in your example might not be a veblen good, but it still isn't a giffen one. The article states that a necessary condition is that "The goods in question must be so inferior that the income effect is greater than the substitution effect". The reason people are buying more when the price rises is not because of the income effect (which would be because they have less money since the price went up, so demand for inferior goods increases), but rather because they now have evidence/reason to believe that the good is quality. That's not giffen according to the definition given, which includes a causal factor for the demand curve.
  - aaight 10y ago
    IANAEconomist (but I could play one on TV) It is simply not true that that a good must be "inferior" to be a Giffen good (unless you adopt a special meaning of inferior, which since it's not necessary to do, I won't agree to). The classic example (thought experiment, without regard to whether it actually happened) is potatoes in poverty stricken Ireland: a poor person's diet would be mostly potatoes (inexensive Econ-Utility (compared to steak): calories, fills the belly) with some meat a few meals a week (expensive Econ-Utility: protein, iron, B vities, tasty, "not potato", even a touch Vebleny) So, arbitrary budget example, let's say $20 at the grocery gets you $15 potatoes every day and $5 of steak 1 days a week. If the price of potatoes goes up, you need to reduce something, but you need to eat every day so you can't reduce potatoes, so you reduce your steak consumption, but now you have some extra money which you spend on even more potatoes. Price of potatoes went up, consumption of potatoes went up. <-- there is already a theoretical problem there, you could reduce steak just enough to keep potatoes equal, so let's just say you can buy a steak or not buy a steak, no half steaks, OK? just trying to make the point "what is a Giffen good", and not trying to prove whether Giffen goods exist or not. So, potatoes are not "inferior" to steaks, both are requirements for a balanced diet; I supposed a technical econ-definition of inferior could be designed to mean something along the lines of "inferior is defined to rule out your example, aaight" In any case, while Giffen goods probably can't exist in a market for any length of time, the concept is completely understandable as a short-term reasonable thing that occurs: I go to the store with cash intending to buy an "assemble your own" burrito with guac, the price of beans went up, I don't have the cash at hand now to get the guac, but it's not a burrito at all without the beans, so I leave out the guac... but turns out by leaving out the guac, I can get a larger size burrito: consumption of beans just went up at the same time as the price. This effect happens for sure... does it happen enough to counteract the people who would leave out the beans and keep the guac? Can the "substition of beans for guac" function always be seen seen to be continuous and differentiable? <-- perhaps not, burrito shops like to have overly expensive add-ons for 2nd order price discrimination, so the price of guac might very well be "quantized" at an absurdly high level, and does that make beans not a Giffen good? ... my point is, the way you guys are arguing this is leaving too much out, can't be answered and wikipedia at this level of analysis is too unreliable.

by yoz-y 10y ago

lmm 10y ago

How are you distinguishing between Giffen and Veblen goods? If you define Veblen in such a way that all Giffen goods are Veblen and then say that disqualifies them then of course you'll find there are no Giffen goods.

yoz-y 10y ago
According to the article: > To be a true Giffen good, the good's price must be the only thing that changes to produce a change in quantity demanded. A Giffen good should not be confused with products bought as status symbols or for conspicuous consumption (Veblen goods) Veblen goods = Goods for which demand rises with price because they are status symbols Giffen = Goods for which demand rises with price - Veblen Goods However there are no examples there that hold, to me this signifies that the only goods for which the law of demand does not apply are status symbols.
- JangoSteve 10y ago
  Isn't a Giffen good then just something where one infers quality from price? I've seen that happen many times with my own eyes, so hard to believe they've never been identified. It's possible to price something so cheap, people assume there's a catch.
  - chimeracoder 10y ago
    > Isn't a Giffen good then just something where one infers quality from price? No, it's an inferior good (in the economic sense) in which the (negative) income effect of a price increase outweighs the success substitution effect. What you are describing is a good that has a positive elasticity of demand with respect to income (or, technically, two different goods, because the higher price represents a different good altogether - one with a higher status symbol).
  - lil_cain 10y ago
    No. The example of a giffen good given is a high calorie food, that's exceptionally low status. Thus, when its price falls, people will demand less of it, as they can afford to replace some of their consumption of that food with more expensive, better food. Workers replacing some proportion of their bread or potato intake with meat, as the price of that bread or potato intake drops, say. The idea is that the good is the lowest quality way of fulfilling some need - so people buy it because they can't afford anything else.

beefield 10y ago

> It seems to me that Giffen goods are a theoretical thing that has never been actually shown in real world In practical terms (that may not fill the theoretical definition of the giffen good), spare time in certain circumstances is quite obviously a Giffen good. Once your income increases (which means the opportunity cost of your spare time increases), you are willing to work less, i.e. consume more spare time. Of course, this is not a universal rule, but I think it is obvious that for _many_ people this is the case. If it was _not_ the case, there was no way people in sweatshops work longer hours than western middle class.

gpawl 10y ago

Giffen goods are likely to exist only in communities of extreme poverty, where the cheapest things you buy dominate your spending. That's why it was only found in an experiment performed on people living on subsistence: https://en.wikipedia.org/wiki/Giffen_good#cite_note-4 https://en.wikipedia.org/wiki/Giffen_good#cite_note-4 I bet you could find it in some video game economies.

dsacco 10y ago

You didn't prove that giffen goods are equivalent with veblen goods, there. If a package of ribeye steak normally sells for $2.99 and doesn't sell well, but then its price changes to $6.99 (but nothing else changes), and demand increases, that steak is a giffen good. The ribeye steak is not conspicuous consumption (unless your definition of status is really loose and includes posting photos of your food to Instagram). What happened there is straightforward: there's an elastic demand for ribeye steak, people saw the price and assumed quality signaling. When it increased to price parity with higher end brands, people assumed quality parity as well. Conversely, a mechanical watch is specifically optimized to be good at time keeping in the most functional and cost inefficient ways (e.g. assembled in hand in a white gold case with a hand-decorated guilloche dial and proprietary in-house movement mechanisms, etc). That is precisely conspicuous consumption, and thus it's a veblen good. One good's demand increases because of quality signaling, the other good's demand increases due to status signaling. The point of there being two of these definitions is the nuance in why consumers would purchase luxury items. Theoretically, people don't buy at Trader Joe's just to brag to their upper class friends that they shop at Trader Joe's (this is not a good example but take away a specific brand and you get the gist).

ikeboy 10y ago
The steak in your example might not be a veblen good, but it still isn't a giffen one. The article states that a necessary condition is that "The goods in question must be so inferior that the income effect is greater than the substitution effect". The reason people are buying more when the price rises is not because of the income effect (which would be because they have less money since the price went up, so demand for inferior goods increases), but rather because they now have evidence/reason to believe that the good is quality. That's not giffen according to the definition given, which includes a causal factor for the demand curve.
- aaight 10y ago
  IANAEconomist (but I could play one on TV) It is simply not true that that a good must be "inferior" to be a Giffen good (unless you adopt a special meaning of inferior, which since it's not necessary to do, I won't agree to). The classic example (thought experiment, without regard to whether it actually happened) is potatoes in poverty stricken Ireland: a poor person's diet would be mostly potatoes (inexensive Econ-Utility (compared to steak): calories, fills the belly) with some meat a few meals a week (expensive Econ-Utility: protein, iron, B vities, tasty, "not potato", even a touch Vebleny) So, arbitrary budget example, let's say $20 at the grocery gets you $15 potatoes every day and $5 of steak 1 days a week. If the price of potatoes goes up, you need to reduce something, but you need to eat every day so you can't reduce potatoes, so you reduce your steak consumption, but now you have some extra money which you spend on even more potatoes. Price of potatoes went up, consumption of potatoes went up. <-- there is already a theoretical problem there, you could reduce steak just enough to keep potatoes equal, so let's just say you can buy a steak or not buy a steak, no half steaks, OK? just trying to make the point "what is a Giffen good", and not trying to prove whether Giffen goods exist or not. So, potatoes are not "inferior" to steaks, both are requirements for a balanced diet; I supposed a technical econ-definition of inferior could be designed to mean something along the lines of "inferior is defined to rule out your example, aaight" In any case, while Giffen goods probably can't exist in a market for any length of time, the concept is completely understandable as a short-term reasonable thing that occurs: I go to the store with cash intending to buy an "assemble your own" burrito with guac, the price of beans went up, I don't have the cash at hand now to get the guac, but it's not a burrito at all without the beans, so I leave out the guac... but turns out by leaving out the guac, I can get a larger size burrito: consumption of beans just went up at the same time as the price. This effect happens for sure... does it happen enough to counteract the people who would leave out the beans and keep the guac? Can the "substition of beans for guac" function always be seen seen to be continuous and differentiable? <-- perhaps not, burrito shops like to have overly expensive add-ons for 2nd order price discrimination, so the price of guac might very well be "quantized" at an absurdly high level, and does that make beans not a Giffen good? ... my point is, the way you guys are arguing this is leaving too much out, can't be answered and wikipedia at this level of analysis is too unreliable.