GIFFEN Meaning and
Definition
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Giffen is an economic term that refers to a type of good or product for which the demand increases as its price rises, contrary to the typical law of demand. This concept was first identified by the Scottish economist Sir Robert Giffen.
The Giffen good defies the general rule of economics, which states that as the price of a good goes up, the quantity demanded for it goes down. However, in the case of a Giffen good, consumers actually continue to purchase more of the good as its price increases. This behavior can be attributed to the fact that Giffen goods tend to be inferior goods, implying they are of lower quality compared to alternatives, and are thus consumed by individuals with lower incomes.
The unusual demand behavior of Giffen goods can be explained by income and substitution effects. As the price of the Giffen good increases, buyers with limited incomes have less money available for other goods. Consequently, they are forced to allocate a greater proportion of their income towards purchasing the Giffen good, leading to an increase in its demand. Additionally, since the Giffen good is an inferior good, the substitution effect is weakened, meaning consumers do not easily switch to substitutes as its price rises.
Giffen goods are relatively rare and are mostly theoretical constructs, as few real-world examples have been successfully identified. Nonetheless, the concept plays an important role in understanding the complexities and exceptions to traditional economic theories surrounding demand and price relationships.
Similar spelling words for GIFFEN
