In economics and consumer theory, a Giffen good
is a product that people consume more of as the price rises—violating
the law of demand. Normally, as the price of goods rises, the
substitution effect makes consumers purchase less of it, and more of
substitute goods. In the Giffen goods situation, the income effect
dominates, leading people to buy more of the goods, even as its price
rises.
A
Giffen good is typically an inferior product that does not have easily
available substitutes, as a result of which the income effect dominates
the substitution effect. Giffen goods are quite rare, to the extent that
there is some debate about their actual existence. The term is named
after the economist Robert Giffen.
For a Giffen good to exist, theoretically three extraordinary economic characteristics must exist at the same time:
1. The good must be an inferior good, such that the demand for the good decreases with an increase in consumer incom.
2. The
good must have an extraordinary income effect, such that a decline in
price of the good causes a significance rise in real income or wealth by
consumers due to the savings
3. There must be no substitutes available for the good.
