Giffen Goods
Giffen good- goods that have a higher demand because they are very cheap.
-strongly inferior goods
-they are consumed by the very poor
-expenditure on these goods represent a very significant proportion of total consumer expenditure.
-All giffen goods are inferior goods but not all inferior goods are giffen goods.
Inferior good- a good that decreases in demand as income rises. (unless they are also giffen goods they typically have negatively sloped demand curves.)
Luxury good (Veblen goods)- Goods that are not seen as essential but have class to them. Their price sets them out of reach of other individuals so richer people enjoy buying them.
Luxury good example:
An example would be Ramen noodles. People don’t buy ramen noodles because it is very cheap and therefore is assumed to not be very good. Rich people will spend their money on expensive food like macaroni because it is more expensive and is safer to assume it is of better quality. If a ramen industry decided to price their ramen a lot higher than its competitors and claim it is fancier ramen. Rich people will see it as more of a luxury good and will buy more of the fancier ramen even if it is of the same quality of the less costly competitors. The fancier ramen also gives the consumer a status symbol. An extreme example of this would be Beluga caviar which can sell for $750,000 dollars. Whether someone enjoys the caviar or not, they will buy the caviar because it gives them a feeling of superiority.
Giffen good example:
In china 30% of the nation lives on less than a dollar a day therefor noodles and rice exhibit giffin behavior because those people can't afford the substitutes.
Giffen good- goods that have a higher demand because they are very cheap.
-strongly inferior goods
-they are consumed by the very poor
-expenditure on these goods represent a very significant proportion of total consumer expenditure.
-All giffen goods are inferior goods but not all inferior goods are giffen goods.
Inferior good- a good that decreases in demand as income rises. (unless they are also giffen goods they typically have negatively sloped demand curves.)
Luxury good (Veblen goods)- Goods that are not seen as essential but have class to them. Their price sets them out of reach of other individuals so richer people enjoy buying them.
Luxury good example:
An example would be Ramen noodles. People don’t buy ramen noodles because it is very cheap and therefore is assumed to not be very good. Rich people will spend their money on expensive food like macaroni because it is more expensive and is safer to assume it is of better quality. If a ramen industry decided to price their ramen a lot higher than its competitors and claim it is fancier ramen. Rich people will see it as more of a luxury good and will buy more of the fancier ramen even if it is of the same quality of the less costly competitors. The fancier ramen also gives the consumer a status symbol. An extreme example of this would be Beluga caviar which can sell for $750,000 dollars. Whether someone enjoys the caviar or not, they will buy the caviar because it gives them a feeling of superiority.
Giffen good example:
In china 30% of the nation lives on less than a dollar a day therefor noodles and rice exhibit giffin behavior because those people can't afford the substitutes.