By Dr. Antonio Graceffo
Economists classify goods into three categories, normal goods, inferior goods, and Giffen goods.
Normal goods is a concept most people find easy to understand. Normal goods are those goods where, as your income goes up, you buy more of them. Take eating in restaurants for example, when you were a student, you couldn’t afford to eat in restaurants, but when you started earning money, you ate more frequently in restaurants.
Inferior goods work the opposite from normal goods. As your income goes up, you buy less of them. When you were a student, you ate ramen because you couldn’t afford steak and fried chicken. When you graduated and began earning money, you bought more stead and fried chicken, and less ramen.
Giffen goods are slightly more complicated. For most goods, we would expect that when the price goes up you buy less, and when the price goes down, you buy more. Giffen goods work the opposite, when the price goes up, you buy more. Here is an example: When I was growing up, we had five kids and my dad, and we all had to be fed on a limited budget which was used to buy meat and potatoes. Meat was more expensive, so we had more potatoes and less meat. When potatoes went up in price, we bought less meat and used that money to buy potatoes. But, we still needed the same quantity of total food to feed the family, so because we bought a smaller quantity of meat, we now had to buy a larger quantity of potatoes, to have enough total food to fill six stomachs. So, an increase in the price of potatoes caused us to buy more potatoes.
#economics #giffen #Consumption
