Sociology Index

Giffen Good

In Giffen Good, higher price leads to higher demand but for different reason to Veblen good. Demand rises with higher price because the income effect of higher price outweighs the substitution effect. A Giffen good is one which people consume more of as the price rises, which goes against the law of demand. Normally, as the price of a good rises, the substitution effect causes consumers to purchase less of it and more of substitute goods. In a situation of Giffen Good, the income effect dominates, leading people to buy more of the good, even as its price rises. A Giffen good is a good that is in greater demand as its price increases. If the price of an essential food staple rises it may mean that consumers have less money to buy more expensive foods, and as a result they will in effect be forced to buy more rice. Other related concepts to Giffen Good include Veblen Effects, Counter-Veblen Effect, Symbolic Communications, Conspicuous Consumption and Inconspicuous Consumption.

Successful brands supplement consumer experience with a range of Veblen goods, in which the demand for Veblen goods such an Apple iPhone increases even if the unit price increases, as you pay a premium for the status conferred through its ownership and consumption. Veblen effect is also caused by the desire for conspicuous consumption of a prestige good. Veblen effect is generally caused by the belief that higher price means higher quality.

Giffen's Paradox is named after the 19th century British economist, Sir Robert Giffen. According to Giffen's Paradox, when the price of bread fell, the demand for it also fell.