Giffen Paradox

Discipline: Economics

Proposed by Scottish economist Sir Robert Giffen (1837-1910) from his observations of the purchasing habits of the Victorian poor, Giffen paradox states that demand for a commodity increases as its price rises.

Giffen paradox is explained by the fact that if the poor rely heavily on basic commodities like bread or potatoes, when prices are low they might still have some disposable income for purchases of other items.

As bread or corn prices rise, these other purchases are no longer possible, thereby forcing the poor to concentrate all their purchasing power on the bread or corn. It should not be confused with products bought as status symbols or for CONSPICUOUS CONSUMPTION.

Source:
R Giffen, Economic Inquiries and Studies (London, 1904)

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