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Another textbook example of a “Giffen good” is the potato during the terrible Irish famine of 1846-1849.  This famine caused nearly a million Irish to die of starvation, and forced nearly another million to emigrate to the United States, Britain, Canada and Australia.  Economists say that the potato during the famine was Giffen good.  The potato crops failed and there was less supply of potatoes, which caused its price to increase.  But the poor Irish, after paying the higher price for potatoes, had less money left to buy more expensive foods.  So they had no choice but to buy even more potatoes to fill their stomachs!  In other words, the increase in the price of the potato wiped out the savings of the Irish, who then bought even more potatoes despite its increase in price.  Note that the potato could have been a Giffen good only if it was also an “inferior” good that saw a surge in demand when people had less income (less money to spend).

Another textbook example of a “Giffen good” is the potato during the terrible Irish famine of 1846-1849.  This famine caused nearly a million Irish to die of starvation, and forced nearly another million to emigrate to the United States, Britain, Canada and Australia.  Economists say that the potato during the famine was Giffen good.  The potato crops failed and there was less supply of potatoes, which caused its price to increase.  But the poor Irish, after paying the higher price for potatoes, had less money left to buy more expensive foods.  So they had no choice but to buy even more potatoes to fill their stomachs!  In other words, the increase in the price of the potato wiped out the savings of the Irish, who then bought even more potatoes despite its increase in price.  Note that the potato could have been a Giffen good only if it was also an “inferior” good that saw a surge in demand when people had less income (less money to spend).

Other economists suggest that tortillas are a Giffen good in Mexico today.  But further investigation shows that neither potatoes in Ireland nor tortillas in Mexico actually qualify as Giffen goods.<ref>"There is no way to buy more potatoes when there are fewer potatoes. Thus, the Giffen legend concerning the great potato famine appears at best to be a misinterpretation of some observed but misunderstood phenomenon, and at worst a kind of hoax."

Other economists suggest that tortillas are a Giffen good in Mexico today.  But further investigation shows that neither potatoes in Ireland nor tortillas in Mexico actually qualify as Giffen goods.<ref>"There is no way to buy more potatoes when there are fewer potatoes. Thus, the Giffen legend concerning the great potato famine appears at best to be a misinterpretation of some observed but misunderstood phenomenon, and at worst a kind of hoax."[http://www.questia.com/googleScholar.qst;jsessionid=KJGB9YyNvyL1pjkp56C2BQfrF2GwvdyxRFYZXlDsgQN3p53LNPrG!766828861!343156199?docId=5000354671]</ref>

http://www.questia.com/googleScholar.qst;jsessionid=KJGB9YyNvyL1pjkp56C2BQfrF2GwvdyxRFYZXlDsgQN3p53LNPrG!766828861!343156199?docId=5000354671</ref>

Rice and noodles are now described as Giffen goods among the poor in China.  Do you believe it?

Rice and noodles are now described as Giffen goods among the poor in China.  Do you believe it?

The graph below is for a typical set of three indifference curves (I₁, I₂ and I₃) for someone for two goods X and Y.  Note that this graph does not compare Price and Quantity, but compares the Quantity of good X (on the x-axis) with the Quantity of good Y (on the y-axis).  As one goes down a specific curve, the person is "indifferent" with giving up Quantity of good Y in exchange for more of good X.  The person becomes more satisfied or happier when he shifts to an entirely new curve, as in moving from I₁ to I₂.  

The graph below is for a typical set of three indifference curves (I₁, I₂ and I₃) for someone for two goods X and Y.  Note that this graph does not compare Price and Quantity, but compares the Quantity of good X (on the x-axis) with the Quantity of good Y (on the y-axis).  As one goes down a specific curve, the person is "indifferent" with giving up Quantity of good Y in exchange for more of good X.  The person becomes more satisfied or happier when he shifts to an entirely new curve, as in moving from I₁ to I₂.  

 

The next graph below is for two goods X and Y that '''''are perfect substitutes for each other''''' (like our example above of a chocolate bar and a peanut butter candy bar).  In the case of perfect substitutes, the person is happy to substitute one good for the other on a one-for-one basis, and hence the slope of the curves is a perfect negative one.

The next graph below is for two goods X and Y that '''''are perfect substitutes for each other''''' (like our example above of a chocolate bar and a peanut butter candy bar).  In the case of perfect substitutes, the person is happy to substitute one good for the other on a one-for-one basis, and hence the slope of the curves is a perfect negative one.

==Consumer Surplus==

==Consumer Surplus==

13.  Explain whether goods X or Y are perfect substitutes or complements or something else for the indifference curves below, and why:

13.  Explain whether goods X or Y are perfect substitutes or complements or something else for the indifference curves below, and why:

== References ==

== References ==