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Purchasing-power-dependent Preferences as a New Explanation of Giffen Behaviour: A Note

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  • Heuson Clemens

    () (Helmholtz-Zentrum für Umweltforschung – UFZ Department Ökonomie, Permoserstraße 15, 04318 Leipzig, Germany)

Abstract

This paper develops an example beyond traditional microeconomic theory that provides a new explanation of Giffen behaviour. Maslow’s hierarchy of needs suggests that an individual’s preferences are not fixed but, rather, depend on purchasing power. A decrease in purchasing power with respect to low-hierarchy goods (e.g., bread) is likely to augment an individual’s preferences for such goods and to weaken preferences for high-hierarchy goods (e.g., books). By introducing a simple purchasing-power-dependent utility function that satisfies the standard assumptions, it is shown that the preference-shifting effect can provoke Giffen behaviour.

Suggested Citation

  • Heuson Clemens, 2011. "Purchasing-power-dependent Preferences as a New Explanation of Giffen Behaviour: A Note," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 231(4), pages 516-521, August.
  • Handle: RePEc:jns:jbstat:v:231:y:2011:i:4:p:516-521
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    References listed on IDEAS

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    1. Christian E. Weber, 1997. "The Case of a Giffen Good: Comment," The Journal of Economic Education, Taylor & Francis Journals, vol. 28(1), pages 36-44, March.
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    Keywords

    Giffen behaviour; purchasing power; preferences;

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