Talk:Giffen good

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Removed It's not hard to see why. It only takes a minute to think of a hyped product that is promoted by a higher than normal price. since this is an example of the demand changing because of advertising, which is not related to the price. Jrincayc 20:05, 28 Nov 2003 (UTC)

Moved from User talk:Jrincayc: I was intrigued by your argument at giffen goods where you say: However, since the actual good is 'high status' and not the wine (, perfume ...) the price of the 'high status' has not gotten cheaper, so goods like this are not usually considered giffen goods. This sounds like a tautology. It sounds like you are defining giffen goods out of existence. I can't imagine any good that could possibly be a giffen good given this explanation. As I see it, the arguement starts to go astray when you seperate the good into two characteristics (wine and status) and claim that it is really only one of these (status). But products cannot be decomposed in such a way (See Product (business). Any product is a bundle of characteristics, some physical and some symbolic. Has the price reduction reduced the image of the product to the extent that it is no longer the same product? Does the price reduction just reflect the reduction in perceived value (so that there is no effective change in price)? Maybe. But if we accept this arguement we must apply it to all products because value is always "perceived". If we do that, then there is no point in searching for giffen goods because we have defined them out of existence. Always interesting talking to you. mydogategodshat 00:23, 2 Dec 2003 (UTC)

Basically, what I meant is that the high status part of the wine decreased because of the price change, so that it is not the same good, so it will not be considered a true giffen good, since the good changed and not just the price. I did not mean to imply that it is only a status good and that the acual drinkable part had no influence on the price. The reason giffen goods are so rare (or non-existant) is that the only thing that changes can be the price, not the perceptions of the good, the good, income or anything else. Jrincayc 22:25, 3 Dec 2003 (UTC)
I would suggest an alternative explanation. The reason giffen goods are non-existant is because a change in price is going to change the perception of the good. There is no situation in which perception of value remains constant while price changes (because price is in the denominator of the value equation), therefore there can be no giffen good. We have defined them out of existance. mydogategodshat 08:45, 5 Dec 2003 (UTC)
I have been doing a bit of research, and the way that we have been using the term giffen good, while correct by some modern text books, is very different from the way Robert Giffen (1837-1910) originally intended. Giffen used it to refer not to a type of goods but to a situation. Here is a good quote: “a rise in the price of bread makes so large a drain on the resources of the poorer laboring families...that they are forced to curtail their consumption of meat and the 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.” Although this applies to inferior goods only, I think we do Giffen a disservice by lumping them in with inferior and normal goods and income and substitution effects. Our microeconomic analysis hides the political statement the Giffen was making. Any comments? mydogategodshat 17:18, 3 Dec 2003 (UTC)
The history is quite interesting, I did not know that. I think it would be a good idea for you to add some of the history to the article. I think that the microeconomic analysis is useful, since it directly follows from the situation given. If the situation arises that someone sees a price increase and then we see that they buy more of the good with the price increase, then from the microeconomics, we know (and can prove with standard microeconomic assumetions) that the good is inferior, the good is using a large portion of their income, and that there are no good substitutes for the good. Jrincayc 22:25, 3 Dec 2003 (UTC)
From the normative position of microeconomic, your inferences certainly are sound. I think Giffen, however, would have said that the inferiority of the good, the large percentage of income, and the lack of close substitutes would be necessary preconditions for the existence of giffen goods (or more accurately for the existence of a situation in which people would purchase more of an appreciated good). Maybe these points are rather obscure "chicken and egg" questions that very few Wikipedians care about, but I would like your input before I make any changes to the article. mydogategodshat 09:09, 5 Dec 2003 (UTC)
Okay fine with me. Inferiority, large percentage of income, and lack of close substituse => possible giffen good. Giffen good => Inferiority, large percentage of income and lack of close substitues. As long as you make it clear that inferiority, lpoi, locs, are preconditions that do not guarenttee that it will be a giffen good, that is fine with me. Jrincayc 15:08, 5 Dec 2003 (UTC)


Contents

[edit] Possible Giffen good: Addictive Drugs

Could addictive narcotics be Giffen goods? They seem to meet the three conditions; the high of narcotics are inferior to a better life (rich and happy people don't do narcotics as much as poor and unhappy people, so far as I know), there are few substitutes, legal or otherwise, and they are expensive enough that they cost a great deal of income. And of course, demand increases over time as they are addictive. --maru (talk) contribs 18:33, 11 April 2006 (UTC)

A rise in price does not increase demand, hence does not meet critical criteria of giffen good. Martin 18:37, 11 April 2006 (UTC)

It seems to me that this is pretty close. The key is an inferior good which when purchased or consumed decreases the earning power of the consumer. I see two ways this could occur. Perhaps the population has some sort of degenerative disease (perhaps man-made) that requires a certain addictive hallucinagen (and reduces their ability to work when used) to stave off degeneracy. As the disease progresses, more and more of the drug is needed to halt future progress (and their earning power further declines). If the price increases, then demand at first decreases. However, the increase in disease progression then increases demand. A nasty way to create a Giffen good, but it might work.

Addictive narcotics such as heroin could fit the bill if there exists an aggressive drug law enforcement regime that drives up prices over time. Not only is demand for heroin by addicts inflexible (junkies will pay any price they can to get a fix) but the demand grows progressively as the addiction deepens. As prices in the overall heroin market rise as a consequence of decreased supply or increased risk to dealers, rising dose requirements among addicts would yet further increase the price. Alternatively, the quality of street drugs my decrease as growing demand encourages dealers to dilute the concentration of their goods, as in "stepped on junk." Thus, junkies would pay more and more money for an increasingly watered-down product; they are likely to be unhappy about this, but will feel as if they have no choice.Yeastbeast 01:00, 10 November 2006 (UTC)

A second possibility is a good whose primary cost is time not money. For example, suppose a government provides rice, bread, or other basic staple food at fixed monetary price well below the normal price (eg, the USSR or North Korea). The real cost of the good is a sizeable length of time that you have to wait to pick up your quantity of the good. The wealthy can either buy the good or some more palatable and expensive substitute on the regular market or if need be, hire someone to wait in line for them. As the price of the good in the regular market increases, the wait time in the line for the staple increases. Someone who is waiting in line cannot use that time to work and earn income. Hence, as the price increases, the queuers earn less income, become less able to afford the substitute goods, and more dependent on picking up the basic staple food. -- KarlHallowell 00:04, 13 May 2006 (UTC)

Maru: your assumptions about narcotics are wrong:

  1. the high of narcotics are inferior to a better life -- The two are not directly comparible. That's like saying that "apple pies are a Griffen Good, since apple pies are inferior than Ferrari cars". It is perfectly possible to have both a good life and the high of narcotics, or a bad life without the high of narcotics, or indeed any combination of bad/good life with/without narcotics.
  2. rich and happy people don't do narcotics as much as poor and unhappy people -- I question that assertion. I especially question the link "rich AND happy" -- I don't believe there is any reliable research that demonstrates that wealth is strongly correlated with happiness (although of course great poverty is strongly correlated lated with UNhappiness). There are distinct patterns of drug use compared to weath: poor abusers tend to abuse more dangerous, but cheaper, drugs like crack cocaine and alcohol, while wealthy abusers tend to abuse more expensive, less dangerous drugs like E or speed. Of course these are just sweeping generalisations and aren't true in all instances, and may not be true for those who use without abusing (e.g. moderate cannabis use is relatively constant across all income levels).
  3. there are few substitutes, legal or otherwise -- There are many substitutes. Generally speaking, narcotics fall into a number of general categories: stimulants ("uppers"), "downers", hallucinogens, etc. There are many stimulants, legal or illegal: cocaine, speed, tea, coffee, chocolate, exercise, adrenaline. And so on for the others.
  4. they are expensive enough that they cost a great deal of income -- That's not necessarily true about narcotics. For instance, the great (and horrible) crack epidemic of the 1990s was fueled by very low prices for crack cocaine, cheaply made. But even if it were, it would be irrelevant to the question of whether they are Griffin goods.
  5. And of course, demand increases over time as they are addictive. -- That is factually untrue. Only *some* narcotics have a "tolerance" effect, where demand increases over time. I believe the classic example of this is morphine, although I welcome corrections. Some of those (e.g. tobacco) level off very quickly, after which no further increase in demand occurs. But, in general, the idea that once you get hooked on a drug, you will need ever-increasing amounts of it is untrue. Many narcotics aren't even addictive (e.g. LSD).

Limeguin 15:39, 29 July 2006 (UTC)

[edit] Expand on the articles mentioned?

Under "Empirical evidence of Giffen goods," it is briefly stated that "DeGrandpre et al (1993) provide such an experimental demonstration. In 1991, Battalio, Kagel, and Kogut proved that quinine water is a Giffen good for lab rats. Thus, at least one real-world example of Giffen goods exists." And that's it. These both sound very interesting, but are glossed over. Would anyone mind expanding on the content of these articles, since someone obviously read them in order to be making these statements? I have to admit that given my tendency to pass out at the sight of large quantities of variables and inequality signs, my chances of (accurately) doing this update myself are slim, hence this entreaty — because the article is quite interesting so far. Mineralogy 00:04, 16 April 2006 (UTC)

[edit] Gasoline section

The section on gasoline gives predictions of a model as if they were facts. e.g. "It is likely that ... will change jobs... will resort to ... Some will move ..." etc. Since none of these things have happened yet, they are at best predictions, not facts. I'm going to prune the section severely. Limeguin 15:49, 29 July 2006 (UTC)

[edit] real giffen good

Poemisaglock 22:25, 29 June 2007 (UTC) Bread became a giffen good in France when the peasants mostly bought it as it was a cheap thing that was about the only thing they could afford. The price went up and they were forced to spend more on bread than other things. As the price continued to rise, they were forced to devote more and more of their money to bread and started to only buy bread. Thus as the price rose, so did the demand for it, constituting a giffen good.

[edit] Jansen & Miller 2007 working paper

Jansen and Miller have recently released a new version of their working paper on Giffen goods that shows the existence of Giffen goods (or Giffen behaviour in their terminology) on the household level by directly subsidizing purchases of staple foods for very poor families in China. I'm not personally an expert in this field, so I can't give too detailed a critique of the paper, but Dani Rodrik seems to think highly of the paper, and the paper itself seems fairly solid to me. If there are no objections from someone more knowledgeable in this field, I'd like to incorporate this into the article. I guess it might also be worthwhile to wait until the paper is published in a peer-reviewed journal. Regardless, this seems to be relevant to the article. taion 02:39, 15 July 2007 (UTC)

[edit] "Gasoline as a possible Giffen good" section seems to contradict the first patagraph

The first paragraph of the artcile reads:

In order to be a true Giffen good, price must be the only thing that changes to get a change in quantity demand

In the "Gasoline as a possible Giffen good" section this doen't appear to be the case: as gasoline prices change, then so does the value of upgrading to a more efficient vehicle. --Twirlip 12:10, 26 August 2007 (UTC)

It's also worth noting that there is no indication that gasoline is an inferior good, and this criterion should be explained if the section is to persist. Property in a distant bedroom community (hence longer commutes and more gas use) may be an inferior good, but the property is the inferior good, not the gasoline. Original research aside, the case for gasoline as giffen is not very strong as stated, and failing additional support this section should be dropped, the example using bread is sufficient to demonstrate the behavior.Somedumbyankee (talk) 18:27, 15 April 2008 (UTC)
I agree. There is no evidence offered here. There are many claimed Giffen goods, e.g., kerosene (Bopp, 1983) and low-grade sake -- shochu -- (Baruch and Kannai, 2001), but the offered evidence has not been found to be convincing. So, this is not the only proposed Giffen good to be offered without evidence (and the kerosene and shochu cases are stronger than gasonline). Why give gasoline more space and prominence than the bona fide examples in the "Empirical Evidence" section? —Preceding unsigned comment added by 72.93.82.108 (talk) 02:02, 23 April 2008 (UTC)

[edit] Luxury Cosmetics should be removed

The Luxury Cosmetics example is not a Giffen good. It is a situation where "price is a signal of quality," which is a different phenomenon entirely. The easiest test is this: Giffen goods must be inferior, i.e., you consume less as your income increases. Luxury cosmetics are normal goods, and most likely true "luxury" goods, with an income elasticity greater than one. So, as your income goes up, you consume more. Any such good cannot be Giffen. As another test, Giffen goods arise in a model where prices only matter to the extent that they affect budget sets. In the luxury cosmetics example, prices enter directly into the utility function (or affect expectations of quality). Finally, at the very least there should be a reference included here. —Preceding unsigned comment added by 72.93.81.208 (talk) 18:57, 21 February 2008 (UTC)

Cosmetics (especially the luxury variety) may in some cases be Veblen goods (price increases value due to status-seeking) and may not follow usual relationships between price and demand, but they aren't inferior goods by nature.