Talk:Giffen good/Archives/2012

Possible Giffen good: Addictive Drugs

Could addictive narcotics be Giffen goods? They seem to meet the three conditions; the high of narcotics are inferior to a better life (rich and happy people don't do narcotics as much as poor and unhappy people, so far as I know), there are few substitutes, legal or otherwise, and they are expensive enough that they cost a great deal of income. And of course, demand increases over time as they are addictive. --maru (talk) contribs 18:33, 11 April 2006 (UTC)

A rise in price does not increase demand, hence does not meet critical criteria of giffen good. Martin 18:37, 11 April 2006 (UTC)

It seems to me that this is pretty close. The key is an inferior good which when purchased or consumed decreases the earning power of the consumer. I see two ways this could occur. Perhaps the population has some sort of degenerative disease (perhaps man-made) that requires a certain addictive hallucinagen (and reduces their ability to work when used) to stave off degeneracy. As the disease progresses, more and more of the drug is needed to halt future progress (and their earning power further declines). If the price increases, then demand at first decreases. However, the increase in disease progression then increases demand. A nasty way to create a Giffen good, but it might work.

Addictive narcotics such as heroin could fit the bill if there exists an aggressive drug law enforcement regime that drives up prices over time. Not only is demand for heroin by addicts inflexible (junkies will pay any price they can to get a fix) but the demand grows progressively as the addiction deepens. As prices in the overall heroin market rise as a consequence of decreased supply or increased risk to dealers, rising dose requirements among addicts would yet further increase the price. Alternatively, the quality of street drugs my decrease as growing demand encourages dealers to dilute the concentration of their goods, as in "stepped on junk." Thus, junkies would pay more and more money for an increasingly watered-down product; they are likely to be unhappy about this, but will feel as if they have no choice.Yeastbeast 01:00, 10 November 2006 (UTC)

A second possibility is a good whose primary cost is time not money. For example, suppose a government provides rice, bread, or other basic staple food at fixed monetary price well below the normal price (eg, the USSR or North Korea). The real cost of the good is a sizeable length of time that you have to wait to pick up your quantity of the good. The wealthy can either buy the good or some more palatable and expensive substitute on the regular market or if need be, hire someone to wait in line for them. As the price of the good in the regular market increases, the wait time in the line for the staple increases. Someone who is waiting in line cannot use that time to work and earn income. Hence, as the price increases, the queuers earn less income, become less able to afford the substitute goods, and more dependent on picking up the basic staple food. -- KarlHallowell 00:04, 13 May 2006 (UTC)

Maru: your assumptions about narcotics are wrong:

1. the high of narcotics are inferior to a better life -- The two are not directly comparible. That's like saying that "apple pies are a Griffen Good, since apple pies are inferior than Ferrari cars". It is perfectly possible to have both a good life and the high of narcotics, or a bad life without the high of narcotics, or indeed any combination of bad/good life with/without narcotics.
2. rich and happy people don't do narcotics as much as poor and unhappy people -- I question that assertion. I especially question the link "rich AND happy" -- I don't believe there is any reliable research that demonstrates that wealth is strongly correlated with happiness (although of course great poverty is strongly correlated lated with UNhappiness). There are distinct patterns of drug use compared to weath: poor abusers tend to abuse more dangerous, but cheaper, drugs like crack cocaine and alcohol, while wealthy abusers tend to abuse more expensive, less dangerous drugs like E or speed. Of course these are just sweeping generalisations and aren't true in all instances, and may not be true for those who use without abusing (e.g. moderate cannabis use is relatively constant across all income levels).
3. there are few substitutes, legal or otherwise -- There are many substitutes. Generally speaking, narcotics fall into a number of general categories: stimulants ("uppers"), "downers", hallucinogens, etc. There are many stimulants, legal or illegal: cocaine, speed, tea, coffee, chocolate, exercise, adrenaline. And so on for the others.
4. they are expensive enough that they cost a great deal of income -- That's not necessarily true about narcotics. For instance, the great (and horrible) crack epidemic of the 1990s was fueled by very low prices for crack cocaine, cheaply made. But even if it were, it would be irrelevant to the question of whether they are Griffin goods.
5. And of course, demand increases over time as they are addictive. -- That is factually untrue. Only *some* narcotics have a "tolerance" effect, where demand increases over time. I believe the classic example of this is morphine, although I welcome corrections. Some of those (e.g. tobacco) level off very quickly, after which no further increase in demand occurs. But, in general, the idea that once you get hooked on a drug, you will need ever-increasing amounts of it is untrue. Many narcotics aren't even addictive (e.g. LSD).

Limeguin 15:39, 29 July 2006 (UTC)

Expand on the articles mentioned?

Under "Empirical evidence of Giffen goods," it is briefly stated that "DeGrandpre et al (1993) provide such an experimental demonstration. In 1991, Battalio, Kagel, and Kogut proved that quinine water is a Giffen good for lab rats. Thus, at least one real-world example of Giffen goods exists." And that's it. These both sound very interesting, but are glossed over. Would anyone mind expanding on the content of these articles, since someone obviously read them in order to be making these statements? I have to admit that given my tendency to pass out at the sight of large quantities of variables and inequality signs, my chances of (accurately) doing this update myself are slim, hence this entreaty — because the article is quite interesting so far. Mineralogy 00:04, 16 April 2006 (UTC)

Gasoline section

The section on gasoline gives predictions of a model as if they were facts. e.g. "It is likely that ... will change jobs... will resort to ... Some will move ..." etc. Since none of these things have happened yet, they are at best predictions, not facts. I'm going to prune the section severely. Limeguin 15:49, 29 July 2006 (UTC)

Is it possible to have a Griffen good for certain strata of consumers or does the definition require it to be an accross-the-board phenomona? With oil in 2008, I've not seen any evidence to suggest that the Griffen good model for oil is not true for lower income consumers. -Chris (unregistered user) —Preceding unsigned comment added by 74.229.85.62 (talk) 03:34, 3 July 2008 (UTC)

real giffen good

Poemisaglock 22:25, 29 June 2007 (UTC) Bread became a giffen good in France when the peasants mostly bought it as it was a cheap thing that was about the only thing they could afford. The price went up and they were forced to spend more on bread than other things. As the price continued to rise, they were forced to devote more and more of their money to bread and started to only buy bread. Thus as the price rose, so did the demand for it, constituting a giffen good.

creative commons phenomena

It may be possible to observe giffen goods in reverse when prices fall. For example books and music at a moderate price trade at a given rate, yet when the price falls, as with creative commons music and text offered free, consumption paradoxically falls. Or am I confusing this with supply and demand? --Tradimus (talk) 09:07, 20 December 2011 (UTC)

Jensen & Miller 2007 working paper

Jensen and Miller have recently released a new version of their working paper on Giffen goods that shows the existence of Giffen goods (or Giffen behaviour in their terminology) on the household level by directly subsidizing purchases of staple foods for very poor families in China. I'm not personally an expert in this field, so I can't give too detailed a critique of the paper, but Dani Rodrik seems to think highly of the paper, and the paper itself seems fairly solid to me. If there are no objections from someone more knowledgeable in this field, I'd like to incorporate this into the article. I guess it might also be worthwhile to wait until the paper is published in a peer-reviewed journal. Regardless, this seems to be relevant to the article. taion 02:39, 15 July 2007 (UTC)

It looks like this article just came out in the American Economic Review (September 2008).

"Gasoline as a possible Giffen good" section seems to contradict the first patagraph

The first paragraph of the artcile reads:

In order to be a true Giffen good, price must be the only thing that changes to get a change in quantity demand

In the "Gasoline as a possible Giffen good" section this doen't appear to be the case: as gasoline prices change, then so does the value of upgrading to a more efficient vehicle. --Twirlip 12:10, 26 August 2007 (UTC)

It's also worth noting that there is no indication that gasoline is an inferior good, and this criterion should be explained if the section is to persist. Property in a distant bedroom community (hence longer commutes and more gas use) may be an inferior good, but the property is the inferior good, not the gasoline. Original research aside, the case for gasoline as giffen is not very strong as stated, and failing additional support this section should be dropped, the example using bread is sufficient to demonstrate the behavior.Somedumbyankee (talk) 18:27, 15 April 2008 (UTC)

I agree. There is no evidence offered here. There are many claimed Giffen goods, e.g., kerosene (Bopp, 1983) and low-grade sake -- shochu -- (Baruch and Kannai, 2001), but the offered evidence has not been found to be convincing. So, this is not the only proposed Giffen good to be offered without evidence (and the kerosene and shochu cases are stronger than gasonline). Why give gasoline more space and prominence than the bona fide examples in the "Empirical Evidence" section? —Preceding unsigned comment added by 72.93.82.108 (talk) 02:02, 23 April 2008 (UTC)

It seems like the kerosene and shochu examples should be added. I'm going to do it. —Preceding unsigned comment added by 75.32.7.91 (talk) 16:00, 28 December 2008 (UTC)

Luxury Cosmetics should be removed

The Luxury Cosmetics example is not a Giffen good. It is a situation where "price is a signal of quality," which is a different phenomenon entirely. The easiest test is this: Giffen goods must be inferior, i.e., you consume less as your income increases. Luxury cosmetics are normal goods, and most likely true "luxury" goods, with an income elasticity greater than one. So, as your income goes up, you consume more. Any such good cannot be Giffen. As another test, Giffen goods arise in a model where prices only matter to the extent that they affect budget sets. In the luxury cosmetics example, prices enter directly into the utility function (or affect expectations of quality). Finally, at the very least there should be a reference included here. —Preceding unsigned comment added by 72.93.81.208 (talk) 18:57, 21 February 2008 (UTC)

Cosmetics (especially the luxury variety) may in some cases be Veblen goods (price increases value due to status-seeking) and may not follow usual relationships between price and demand, but they aren't inferior goods by nature.

The diagram needs to be updated

There are a couple of problems with the diagram in this entry. First, the indifference curves as drawn will intersect (or be non-convex). But, indifference curves cannot cross. This is due to the fact that the indifference curves have generally the same shape, but the indifference curves associated with Giffen behavior tend to "fan out." Second, the illustration of the substitution effect is not correct. If the diagram is intended to illustrate Hicksian demand, then the blue dotted line should be tangent to the indifference curve through point A, and point B should be at this tangency. (If the intention is to use Slutsky compensation instead of Hicksian compensation, then the dotted line should go through A, and point B should be the point that maximizes the consumer's utiltiy along this line.) the diagram replaced by the 29 March 2008 edit appears to be more accurate, although admittedly uglier. —Preceding unsigned comment added by 71.184.159.162 (talk) 19:53, 4 October 2008 (UTC)

As I mentioned on commons, I am not an economist, and simply tried to replicate the previous diagram, from which it is somewhat difficult to deduce such details. Unfortunately I have no time to correct the diagram, but anyone is welcome to use my attempt as a starting point to produce a more accurate version.----Rossheth | Talk to me 11:32, 11 April 2009 (UTC)

Does Giffen good really exist?

The whole article just seems to assume that Giffen good is proved to exist, but in fact there are some opposing opinions. Just like in the AL Economics in Hong Kong (where Prof. Steven N.S. Cheung is responsible for the syllabus) ,they argue that Giffen good can only logically exist in one-man world, but not in the real market. Frankly speaking,I know quite little about the issue, but I think that the article should be balanced and should have the opposing comments. So anyone can help to update the article?

some source:

past paper of HK AL about Giffen good:

http://www.economists.com.hk/discuz/viewthread.php?tid=19232&extra=page%3D1

Prof. Steven N.S. Cheung's comment:

http://blog.sina.com.cn/s/blog_47841af701000ap1.html

--Kfsung (talk) 13:52, 11 November 2008 (UTC)

Types of Goods diagram

Hey, I'm the author of the original "types of goods diagram", as it is to be found in http://en.wikipedia.org/wiki/File:Types_of_goods.svg. Jrennie updated this diagram to what we see now in the Giffen good article (http://en.wikipedia.org/wiki/File:Types_of_goods2.svg). However I have my doubts that this update (the change in the elasticity signs) is correct. Jrennie has changed all the income elasticities to negative. But elasticity is, by wikipedia (http://en.wikipedia.org/wiki/Income_elasticity_of_demand) usually positive: when you have more money, you buy more. It is only price elasticities that are usually negative (see http://en.wikipedia.org/wiki/Price_elasticity_of_demand). Okay to revert this? --Mr fabs (talk) 11:40, 27 April 2010 (UTC)