Giffenhyödyke

Giffenhyödyke, named after economist Sir Robert Giffen, refers to a rare type of good where demand increases as the price of the good rises. This phenomenon contradicts the law of demand, which states that as the price of a good increases, the quantity demanded decreases. For a Giffen good to exist, several conditions must be met. Firstly, the good must be an inferior good, meaning that as income rises, people consume less of it. Secondly, the good must represent a significant portion of the consumer's budget, and thirdly, there must be a lack of close substitutes available.

When the price of a Giffen good increases, the income effect outweighs the substitution effect. The income effect refers to the change in demand for a good due to a change in real income. As the price of a Giffen good rises, consumers become poorer in real terms and are forced to buy more of this essential, albeit inferior, good to meet their basic needs, as they can no longer afford more expensive alternatives. The substitution effect, on the other hand, suggests that consumers would switch to cheaper substitutes when the price of a good rises. However, for a Giffen good, the lack of close substitutes prevents this from happening effectively.

The existence of Giffen goods is a subject of debate among economists, with empirical evidence for their existence being scarce. Historically, staple foods like potatoes during the Irish Potato Famine have been cited as potential examples, where rising potato prices forced people to spend more on potatoes as they cut back on other more expensive foods. However, definitively proving a good to be Giffen is challenging due to the complexity of consumer behavior and the difficulty in isolating the income and substitution effects.