Changes

A Giffen good has a decrease in demand when its price decreases.  This violates the law of [[demand]] and is very unusual or even non-existent.  An equivalent way of defining a Giffen good is to say the rise in its price causes an increase in its demand.

A '''Giffen good''' is a product or commodity that has a decrease in demand when its price decreases.  This violates the general law of [[supply and demand]] and is very unusual or even non-existent.  An equivalent way of defining a Giffen good is to say the rise in its price causes an increase in its demand.  One possible example may be with art paintings.

For a Giffen good to exist, three extraordinary economic characteristics must exist at the same time.  First, the good must be an [[inferior good]], such that the demand for the good decreases with an increase in consumer income.  Second, the good must have an extraordinary [[income effect]], such that a decline in price of the good causes a significance rise in real income or wealth by consumers due to the savings.  Third, there must be no substitutes available for the good.

For a Giffen good to exist, theoretically three extraordinary economic characteristics must exist at the same time:

* The good must be an [[inferior good]], such that the demand for the good decreases with an increase in consumer income

* The good must have an extraordinary [[income effect]], such that a decline in price of the good causes a significance rise in real income or wealth by consumers due to the savings

* There must be no substitutes available for the good.

The most commonly cited example of a Giffen good was the potato in Ireland in the 1800s, when families lived almost entirely on potatoes for their sustenance.   

The most commonly cited example of a Giffen good was the [[potato]] in [[Ireland]] in the 1800s, when families lived almost entirely on potatoes for their sustenance.   

Scholars today feel that a Giffen good never existed and cannot exist.  An economics paper by John H. Nachbar explained:<ref>http://econpapers.repec.org/paper/wpawuwpge/9602001.htm</ref>

Some economists today feel that a Giffen good never existed and cannot exist.  An economics paper by John H. Nachbar explained:<ref>http://econpapers.repec.org/paper/wpawuwpge/9602001.htm</ref>

:Giffen goods have long been a minor embarrassment to courses in microeconomic theory. The standard approach has been to dismiss Giffen goods as a theoretical curiosity without empirical content. This note points out that the underlying theory is itself seriously flawed.

:Giffen goods have long been a minor embarrassment to courses in microeconomic theory. The standard approach has been to dismiss Giffen goods as a theoretical curiosity without empirical content. This note points out that the underlying theory is itself seriously flawed.

:As Mr. Giffen has pointed out, a rise in the price of bread makes so large a drain on the resources of the poorer labouring families and raises so much the marginal utility of money to them, that they are forced to curtail their consumption of meat and the more 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.

:As Mr. Giffen has pointed out, a rise in the price of bread makes so large a drain on the resources of the poorer labouring families and raises so much the marginal utility of money to them, that they are forced to curtail their consumption of meat and the more 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.

But no one has ever found where Sir Robert Giffen (1837–1910) made such an argument.

But no one has ever found where Sir [[Robert Giffen]] (1837–1910) made such an argument.

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