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The Demand Curves for Giffen Goods are Downward Sloping

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Author Info

  • Barzel, Y.
  • Suen, W.

Abstract

Consumers' optimal consumption strategy in anticipation of price variations is to equalize the marginal utility of income across different price regimes. Since the marginal utility of income is positively related to the price of a Giffen good, consumers will adopt a consumption plan (through saving and borrowing, insurance, or an appropriate choice of portfolio) that allows them to increase total expenditure when the Giffen good is relatively expensive and to reduce total expenditure when the Giffen good is relatively cheap. Giffen goods being inferior goods, this optimal choice of total expenditures will produce an income effect that reinforces the substitution effect, thus resulting in a downward sloping demand curve. Copyright 1992 by Royal Economic Society.

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Bibliographic Info

Paper provided by Department of Economics at the University of Washington in its series Discussion Papers in Economics at the University of Washington with number 91-18.

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Length: 15 pages
Date of creation: 1991
Date of revision:
Handle: RePEc:fth:washer:91-18

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Keywords: consumption ; prices ; income ; credit;

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Cited by:
  1. Di Vita, Giuseppe, 2001. "Are the outputs derived from secondary materials giffen goods?," Resources Policy, Elsevier, vol. 27(4), pages 255-260, December.
  2. Simon GB Cowan & Simon Cowan, 2002. "Marginal Cost Pricing versus Insurance," Economics Series Working Papers 102, University of Oxford, Department of Economics.
  3. Giacomo Corneo & Olivier Jeanne, 1994. "Conspicuous Consumption and the Existence of Upward Sloping Demand Curves," Discussion Paper Serie A 461, University of Bonn, Germany.
  4. Wilfred Amaldoss & Sanjay Jain, 2002. "An Analysis of the Impact of Social Factors on Purchase Behavior," Review of Marketing Science Working Papers 2-1-1021, Berkeley Electronic Press.

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