Giffen's goods are a certain group of goods, with an increase in the value of which their consumption does not decrease. These goods are more often of low value and do not belong to luxury goods. Since they do not have equivalent substitutes, people cannot refuse to consume them.
The Giffen goods paradox
Consumption of Giffen's goods does not decrease even with a significant increase in their value. People continue to consume in the same quantities, creating austerity on other foods and essential goods.
The Giffen paradox is an exception to the law of demand. The English economist Robert Giffen concluded that during the Irish famine of the mid-19th century, potatoes, the staple food of the poor, rose significantly in value. But consumer demand for it did not fall, people, saving on other necessary goods, continued to buy it, saving themselves from hunger. The economist believed that spending on potatoes in the budget of the poor occupied a considerable share, which contributed to the growth of the demand curve for it.
The Giffen effect is often just a reaction of buyers to the current political or economic situation at the moment and its extension to goods that are in special demand.
Giffen's products tend to take up a large percentage of consumers' budgets and are of very poor quality. The increase in price does not affect their consumption. At the same time, an increase in the income of the population makes it possible to purchase other, better quality substitute goods and to reduce the consumption of vital, cheap, low-quality goods. The effect of replacing these goods should be suppressed by the effect of income. That is, with a low quality of goods and an increase in its value, the effect of income will prevail over the effect of its substitution, with a rapid growth in demand for it.
Some economists have questioned the existence of the Giffen product as such. Despite this, many Western economics textbooks still describe this effect. In developed industrial countries, the Giffen effect happens very rarely.
Historical examples
In 2010, in Russia, due to the rush in the media about the poor harvest of buckwheat, the demand for this product increased sharply, there was a shortage of cereals in stores, the price increased several times. So buckwheat became Giffen's commodity. However, the effect was short-lived.
One of the most popular Giffen goods in Russia today are cigarettes. For comparison, in Europe, after a sharp rise in prices for tobacco products, most people quit smoking and began to lead a healthy lifestyle.
Gasoline also has a short-term effect of Giffen's product, when prices for this product begin to rise and the media escalate the situation with reports of an upcoming fuel crisis. People tend to buy gasoline for future use. However, the excitement disappears very quickly.
In China, Griffen's most popular products are rice and pasta. In Russia - salt, bread and tobacco.
