IB Economics: Demand and Supply

What is a Giffen Good?

Giffen Goods are a type of inferior goods that only applied to those that are very poor, or are suffering from poverty.

As prices of necessities/staple goods (For those that are very Poor) increases, the quantity demanded for these Giffen Goods increases. This is because the rise in these goods leads to a fall in their real income, which reduces their purchasing power.

Subsequently, they will be unable to purchase higher quality substitutes, which leads them with no choice but to keep purchasing the Giffen Good.

Veblen goods are goods where as prices of these goods increase, the quantity demanded for these goods will increase as well.

The reason for this, is because these goods are subject to conspicuous consumption, where the consumption of these goods will lead to increased satisfaction as they are viewed by other people to consume expensive products. Quantity demanded of these goods only rises when the prices are past the snob value, inversely, when the prices of the good falls bellow the point of snob value, the quantity demanded will fall as prices increase.