Giffen good


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Related to Giffen good: Engel curve
General equilibrium analysisclick for a larger image
Fig. 81 General equilibrium analysis. An increase in the price of oil is likely to increase the cost structures of many other industrial sectors, and hence serve to raise the general price level and related wage rates. This increase in prices and wages, in turn, increases input costs to the oil industry.

Giffen good

a GOOD for which quantity demanded increases as its PRICE increases, rather than falls, as predicted by the general theory of DEMAND. It applies only in the highly exceptional case of a good (see INFERIOR PRODUCT) that accounts for such a high proportion of households’ budgets that an increase in price produces a large negative INCOME EFFECT, which completely overcomes the normal SUBSTITUTION EFFECT. See PRICE EFFECT, UPWARD-SLOPING DEMAND CURVE.
References in periodicals archive ?
Given the existence of inferior goods, it's possible to imagine a Giffen good. A good could be so inferior that, if the consumer's income were to fall at a time when the inferior good's price is rising, the income effect on the inferior good could fully overcome its substitution effect.
However, an individual with DARA might treat insurance as a Giffen good (3) when the income effect exceeds the substitution effect.
Robson, 1981, Insurance as a Giffen Good, Economics Letters, 8: 47-51.
Let a consumer consume two goods and let Good 1 be a Giffen good. Then, Good 1 is necessarily an inferior good, and by Equation (1), Good 1 is a substitute for Good 2.
On the one hand, Boland's tone would lead us to conclude that he is arguing on a priori grounds against the existence of Giffen goods and feels that this is a legitimate method of argument.
The following proposition states the necessary and sufficient condition for a coinsurance-type insurance policy covering a particular risk to be a Giffen good without restricting the risk to have a discrete state space:
Thus, Gilley and Karels [1991] claim, in essence, that the food which provides the most calories per dollar spent must be a Giffen good. In their words [p.
First, if the consumer is subject to a single constraint, as he is in Hicksian utility theory, it is indeed true that an upward-sloping demand curve characterizes a Giffen good. But this is not so if the consumer faces two constraints, as he does in the Gilley-Karels model.
[8.] Hoy, Michael and Arthur Robson, "Insurance as a Giffen Good." Economics Letters, Vol.
"Experimental Confirmation of the Existence of a Giffen Good." American Economic Review, September 1991, 961-70.
Contrary to the well-known result obtained in the standard static model, insurance may not be a Giffen good in the sense that a transitory increase in the loading factor of insurance always reduces the demand for insurance in the short run, under risk aversion alone.(1) The same result holds for the effect of a permanent change on the long-term demand for insurance.
The question of interest is how to define a Giffen good. In the original sense of Hicksian utility analysis, potential Giffen goods are generated by very unusual preferences.