All Giffen Goods Are Inferior but Not All Inferior Goods Are Giffen Goods

All Giffen goods are inferior, but not all inferior goods are Giffen goods

There exists an interesting debate on the fact that all Giffen goods are inferior, but however not all inferior goods are Giffen goods. A critical examination of the characteristics of both goods would be able to provide a solution to this debate.

Giffen goods are types of goods which consumers patronize more of, even as price increases. These goods violate the law of demand Thus, when the price of a Giffen good increases, the demand for that good increases. Examples of Giffen goods are extremely hard to find, because, for good to be classified as Giffen a number of conditions would have to be satisfied for the associated behavior to be observed, these include the fact that the good would have to be inferior and must lack close substitutes. Also, it would have to be a good that is such a large proportion of a person or market's consumption, that the income effect of a price increase would produce, effectively, more demand. The observed demand curve would slope upward, indicating positive elasticity For a good to be truly Giffen, price must be the only thing that changes in order to get a change in quantity demanded, thus an increase in price creates an increase in demand and vice versa. A Giffen good has a positive income effect and is inferior. Rice and wheat noodles are examples of Giffen goods in China's Hunan Province. A Giffen good is often described as a rare and extreme type of Inferior good.

On the other hand, an inferior good is a good that decreases in demand when consumer income rises. A key point to note is that these goods are affordable and adequately fulfill their purpose, but as more costly substitutes that offer more pleasure become available, the use of the inferior goods diminishes. Inferior goods can also be viewed as anything a consumer would demand less of if they had a higher level of real income. An example of an inferior good is public transportation. In times where consumers are paid less, they may forgo using their own forms of private transportation in order to cut down costs associated with owning a vehicle such as car insurance, fuel and other car maintenance costs and instead opt to use a less expensive form of transportation (public transportation) Inferior goods have negative elasticity income of demand.

In comparing the two with regards to demand: Demand for inferior goods decreases as incomes increase and vice versa; some examples include trotro/ taxis, gari, cowbell milk powder etc. With Giffen goods demand will rise when the price of these goods rises; consumers with relatively low disposable incomes will refrain from expenditures on other goods when the price of a staple good rises, as other goods may now be beyond reach owing to the negative income effects of the rise in price of the staple good. A critical example of note can be traced to households in