#Economics101 Archives - Page 49 of 120

What is a giffen good?

A Giffen Good is a good or service that violates the law of demand.

Specifically, it is when the demand for a good increases, as the price increases.

Examples?

I don’t know.

This is the unicorn of the economics world.

The classic example is potatoes during the Irish potato famine.

Potato prices were rising, people were starving, and potato demand increased for fear of being able to afford fewer and fewer potatoes in the future.

This example is disputed.

Others have pointed to gasoline as an example, for certain customers.

What is the substitution effect?

The Substitution Effect is a change in consumption when a customers preferences move up or down, along, an indifference curve.

For example:

I might be indifferent between eating four pizzas or two cheeseburgers per week.

But if the price of pizza increases, I might then be indifferent between another combination involving less pizza and more cheeseburgers.

Economics 101: Giffen Good