11. The Giffen Good (When Demand Slopes Upward)

[jasenferrara]

dude, your're the man. Im a student in intermediate micro and this is my professor's first year teaching the subject, needless to say hes a smart guy but a terrible, painstakingly boring teacher. you do a great job of explaining the topics, without you id be totally fucked. Wish there was more on the algebra side of math rather than calculus, though.

[SarahMathurin]

Can anyoen clarify why is it that the income effect moves in the opposite direction as the substitution effect?

[DhallaBBP]

@intromediateecon What about some Stock's, People buy more as the value goes up because they think it is on an upward trend?

Thanks for your help!

[intromediateecon]

@DhallaBBP If people buy more of a stock because the price goes up, that doesn't quite fit with the Giffen story. In fact, the upward trend changes the value of the product to the person buying the stock (b/c they speculate that the price will go up into the future). That's akin to wanting to buy more of a diamond bracelet because the price goes up... the price change indicates "quality" which really means that the good with the higher price isn't the same good as the good with the low price.

[intromediateecon]

@DhallaBBP Also, be careful drawing the analogy between the "higher price suggests quality" story and stocks. I wouldn't recommend buying stocks simply because they have been on an upward trend. Yes, it is true that people do it in the market, but an upward trending stock does not mean guaranteed return (or even more likely to have positive return).

[Sacktacular]

You are a boss

[barcnnqo]

Thanks, man. You are a champion!

[GoodFella21100]

Are the prices 15 and 8 on the vertical random, if not how can they be derived?

[intromediateecon]

@GoodFella21100 Yes. I picked some prices to illustrate the concept by example.

[GoodFella21100]

@intromediateecon ok, thanks.

[LuckyPaterno]

Thanks for answer, I often get confused around the details of them. Btw, I've read that the Giffen good has been practised in China, Huan province or something, do you know if this is reliable? I've heard about a rat-experiment before, but when you hope to find something special, you usually find it in the end. Just wondering if this is a similar situation.

[intromediateecon]

@LuckyPaterno The China Giffen Good is rice (and also, maybe wheat) for a restricted subset of the population. I skimmed the paper about a year ago and the methods seemed legitimate. For what it is worth, the paper on the Giffen experiment in China is published (or going to be published) in the American Economic Review, a widely-respected journal (top 5 journal). That fact suggests to me that the experiment was probably done right (for the most part).

[germanskater]

So basically the interesting main point about griffin goods is, that because

1. if the good becomes more expensive>>>2.the customers have less real income>>3.they are "poorer">>4.because it is an inferior good, they buy more of it, because they are poorer>>5. and this "income effect" is bigger than the "substitution effect" ?

did I get this right?

thank you very much for that video!

[intromediateecon]

@germanskater You got it. Thanks for the feedback.

[w1drwomn]

So you know it's a Giffen good bc of  a price change? And an inferior good bc income?

[intromediateecon]

@w1drwomn That sounds about right. Income effects are inferior if they are negative (more income ==> less consumption). Price effects are Giffen if they are positive (higher price ==> more consumption).

[newsh101]

How would you derive the demand curve from the Slutsky diagram for a Giffen good?

[intromediateecon]

@newsh101 The same way as you would derive the demand curve from an indifference curve and budget constraint diagram from any other good. If you don't know how to do this, start with the diagram like the one I use in the opening of this video. Then, refer to Lecture 9.

[newsh101]

Cheers

[LuckyPaterno]

I may have misunderstood, but isn't an inferior good when the substitution effect is stronger than the income effect, and a giffen good when the income effect is stronger than the substitution effect?

[intromediateecon]

@LuckyPaterno An inferior good is when the income effect is negative (i.e., less income, greater demand). In this case, the income and substitution effects of a price change go in opposite directions from one another.

I think your confusion is that you think that inferior and Giffen are mutually exclusive categories. That's not true. All Giffen goods are inferior, and for a good to be Giffen, it has to be the case that the income effect is *also* stronger than the substitution effect.

[indomerum]

hola,  gran manera de explicar y muy sencilla xD me ha ayudado bastante

estare revisando tus otros videos xD

[intromediateecon]

@indomerum no hablo espanol bien, pero muchas gracias. I hope my videos are helpful to you.

[pcoess]

But doesn't the indifference curve analysis never derive the law of demand?

[intromediateecon]

@pcoess That's the point of this video. Upward-sloping demand is a theoretical possibility, but it so very rarely happens that we have a "law of demand." Substitution effects go in the right direction for the law of demand to hold (higher price ==> less consumption), but income effects for inferior goods are what creates the theoretical possibility for a Giffen good.

[fhunkymonkey]

invest in a tripod your camera man/woman wobbles quite a bit.

[intromediateecon]

@fhunkymonkey Thanks for the suggestion. I noticed that she wobbled a lot in her filming of my tutorials. Shortly after this video, I switched to using a tripod. I think my later videos have gotten better on this account.

[intromediateecon]

@spancecary Also, I am aware of the paper to which you refer on Giffen behavior. It is an interesting paper. To my knowledge, Jensen and Miller don't conclude that labeling the behavior as "Giffen" is inaccurate (Google the title; the paper is the first pdf). From the abstract and conclusion, they seem convinced that it is Giffen. My interpretation is that they focused on the subset of consumers to identify Giffen behavior because they knew that was the only hope for finding it.

[intromediateecon]

@spancecary You are right that the diamond ring example is a Veblen good. That was my point in the video. In fact, at 2:52, the video already has a caption that states this.

[3825cortland]

Mommy, i just think he made it worse, the only problem i have with econ, teachers, is they assume your know all the vocab

[tony91782]

@3825cortland The only vocab that I assume is the material in Lectures 5 through 10 of this series of videos. If the vocab in this video is unfamiliar, perhaps you should view those first.

If you have already watched those videos (and don't have more basic questions), you should ask about specific vocab words that confuses you. Maybe I can clarify something.

[bjranga]

Thanks a lot for this, a very clear explanation. Extremely useful.

One thing I would suggest is you get a clip-on microphone and a tripod, because your material is great and informative, it just gets let down a bit by the actual presentation.

[LEISL1990]

when the price of the giffen good rises, why will the indifference curve come in a different shape.

normally they're in the same shape. am i right in saying that?

[TheDanielle20009]

The graphs are too small. Next time could you draw it bigger so that the changes taking place can easily be seen.

[intromediateecon]

I apologize for the small size of the graphs. I think the problem is that the camera is too far away. As you can see from the video, I cannot draw much bigger graphs given my whiteboard.

I will try to make sure the camera is closer in the future.

Thanks for the feedback.

[ClaytonTV]

I just logged on to say thank you for all your videos! I have a midterm on Friday and your vids have already helped so much!

Have a great day!:)

[edwardwang520]

good work dude! i have microeconomics soon this really helps! haha..thx! 5/5