# What Are Giffen Goods? Definition, Examples, and Economic Insights

## What Is a Giffen Good?

Giffen goods challenge the usual economic laws, as these non-luxury essentials see demand increase with rising prices. Named after Sir Robert Giffen, lower-income necessities such as bread and rice exhibit an unusual upward-sloping demand curve. Understand the dynamics, examples, and history behind this fascinating economic concept.  

### Key Takeaways

*   Giffen goods defy the traditional law of demand by increasing in demand as prices rise.  
    
*   Named after Sir Robert Giffen, these goods are typically essential, low-income items with few substitutes.  
    
*   The upward-sloping demand curve of Giffen goods is driven by a significant income effect that outweighs the substitution effect.  
    
*   Historical studies have shown that rice in China's Hunan province is an example of a Giffen good.  
    
*   Giffen goods focus on essentials and income effects, whereas Veblen goods are driven by luxury and social status motivations.

![Giffen Good](https://www.investopedia.com/thmb/wd3HElNiFmC5p-TAWxfysyOhZUU=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/giffen-good-57985c7d736e47d0b513e27866c5baf2.jpg)

*— Investopedia / Laura Porter*

## The Economics Behind Giffen Goods: An In-Depth Analysis

Giffen goods are a rarity in economics because supply and demand for these goods are opposite of standard conventions. Giffen goods arise from various market variables, such as supply, demand, price, income, and substitution. All of these variables are central to the basic theories of supply and demand economics. Examples of Giffen goods are a study in the effects of these variables on low-income, non-luxury goods which result in an upward sloping demand curve.

## Understanding the Unique Demand Patterns of Giffen Goods

The laws of [supply and demand](https://www.investopedia.com/articles/economics/11/intro-supply-demand.asp) govern macro and microeconomic theories. Economists have found that when prices rise, demand falls creating a downward sloping curve. When prices fall, demand is expected to increase creating an upward sloping curve. Income can slightly mitigate these results, flattening curves since more personal income can result in different behaviors. Substitution and the [substitution effect](https://www.investopedia.com/ask/answers/050515/substitution-effect-negative-consumers.asp) can also be significant. Since there are typically substitutes for most goods, the substitution effect helps strengthen the case for standard supply and demand.

With Giffen goods, the income effect is strong, and the substitution effect is also significant. The demand curve is upward sloping which shows more demand at higher prices. With few substitutes, consumers continue buying Giffen goods even when prices rise.

Giffen goods are usually essential items as well which then incorporates both the income effect and a higher price substitution effect. Because Giffen goods are essential, consumers are willing to pay more, limiting disposable income and making pricier alternatives less accessible. Therefore, consumers buy even more of the Giffen good. Income and substitution effects both contribute to the unusual demand patterns of Giffen goods.

## Historical Case Studies: Real-World Examples of Giffen Goods

 In "Principles of Economics," Alfred Marshall noted Giffen's observation that bread prices rose due to insufficient income to afford meat. However, in 1947, the meat-bread example was challenged by George J. Stigler in his article "Notes on the History of the Giffen Paradox." A 2007 study by Harvard economists Robert Jensen and Nolan Miller found a Giffen good in China. They studied rice in Hunan, a staple there, and wheat in Gansu as a staple. Randomly selected households in both provinces were given [vouchers](https://www.investopedia.com/terms/v/voucher.asp) that subsidized the purchase of their respective staple foods.

Jensen and Miller found strong evidence of Giffen behavior exhibited by Hunan households with respect to rice. Lowering the price of rice through the subsidy caused reduced demand by households for the rice while increasing the price by removing the subsidy had the opposite effect. However, the evidence of wheat in Gansu was weaker.

## Giffen Goods vs. Veblen Goods: Key Differences Explained

Both Giffen goods and [Veblen goods](https://www.investopedia.com/terms/v/veblen-good.asp) are nonordinary [goods that defy standard supply and demand conventions](https://www.investopedia.com/ask/answers/032715/are-there-any-exceptions-law-demand-economics.asp). With both Giffen and Veblen goods, a product’s demand curve is upward sloping. Income and substitution are key factors in explaining the econometrics of the upward sloping demand curve for Giffen goods as discussed.

Veblen goods also have an upward sloping demand curve but with some slightly different influences. Veblen goods are premium product, luxury goods. Examples can include celebrity-endorsed perfumes or fine wines. With these goods, their high price is associated with a high social status symbol. As such, high-income consumers find these goods more desirable at a higher price. The income effect has little impact on these goods because income is not a factor. Substitution is also a minimal factor because the goods are generally status symbols and not cross-dimensional.

## The Bottom Line

Giffen goods challenge traditional economic principles by exhibiting a counterintuitive demand pattern where demand rises with price increases. Named after Sir Robert Giffen, these goods are essential, non-luxury items for which the income effect outweighs the substitution effect, leading to an upward-sloping demand curve. Bread and rice are prominent examples. Understanding Giffen goods provides insights into complex market behaviors and highlights the nuances required when analyzing supply and demand dynamics. Comparatively, unlike Veblen goods, which are driven by social status and luxury, Giffen goods are driven by necessity and economic constraints.  

> **Article Sources**
>
> 1.  Harvard University. "[Giffen Behavior: Theory and Evidence](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=310863).” Pages 4-5. Download PDF.
>     
> 2.  Alfred Marshall. “[Principles of Economics, Unabridged Eighth Edition](https://www.google.com/books/edition/Principles_of_Economics/IyZJXc_v-TAC?hl=en&gbpv=0),” Pages 109-110. Cosimo Classics, 2009.
>     
> 3.  Stigler, George J. "[Notes on the History of the Giffen Paradox](http://mikael.cozic.free.fr/stigler47-history%20of%20giffen%20goods.pdf).” _The Journal of Political Economy_, vol. 55, no. 2, April 1947, pp. 152–153.
>     
> 4.  Harvard University. "[Giffen Behavior: Theory and Evidence](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=310863).” Page 4. Download PDF.
>     
> 5.  IFT. “[Concept 18: Substitution and Income Effects](https://ift.world/concept1/level-concept-18-substitution-income-effects/).”
>     
> 6.  Thorstein Veblen. “[The Theory of the Leisure Class: an Economic Study of Institutions](https://www.google.com/books/edition/The_Theory_of_the_Leisure_Class/hdc3AAAAMAAJ?hl=en&gbpv=0),” Pages 68-101. Macmillan, 1912.