11. The Giffen Good (When Demand Slopes Upward)

In this video, I use budget constraints and indifference curves to demonstrate the theoretical possibility of an upward-sloping demand curve. A good with an upward-sloping demand curve is called a Giffen good. After demonstrating the possibility, I analyze the income and substitution effects for a Giffen good to demonstrate why Giffen good "cannot" be found in real-world situations.

Category:

Education

Tags:

• Giffen goods
• microeconomics
• economics lectures
• indifference curves
• budget constraints
• consumer behavior
• law of demand
• income effects
• substitution effects
• educational

[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.

[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).

[edwardwang520]

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

[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.

[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.

[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).

[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.

[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!

[Sacktacular]

You are a boss

[barcnnqo]

Thanks, man. You are a champion!

[GoodFella21100]

@intromediateecon ok, thanks.