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What is a Giffen Good?

 , November 17, 2015
A giffen good is good that receives more demand at a higher price due to a substitution effect. The concept is not used to model the price of luxury goods but is most commonly applied to staple items.
A classic example of a giffen good is rice in a poor country. When the price of rice is low people have extra money and buy more meat. However, when the price of rice rises people can afford less meat and therefore buy more rice.
Giffen goods occur where a price rise causes more expensive substitutes to be beyond people's budgets.
Overview: Giffen Good
FunctionEconomics
DefinitionA good that receives more demand at a higher price because people can no longer afford more expensive substitutes.
Illustrative ExampleA video game enthusiast can no longer afford a trip when the price of video games goes up, so she buys more video games and stays home on her vacation days.
Related ConceptsVeblen Goods

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