Glamor Economics

Chapter 39

Chapter 6, Section 2 The more expensive things are, the more you buy them——Giffen Commodities

British scholar Robert?Giffen observed a phenomenon in Ireland in the 19th century: In 1845, a catastrophe broke out in Ireland. Although the price of potatoes rose sharply during the famine, Irish farmers increased their consumption of potatoes.Later, in order to commemorate Giffen, the economic phenomenon discovered by Giffen that the price rises and the demand also increases is called the "Giffen phenomenon".

Analyzing the Giffen mystery, it is not difficult to find that there are two prerequisites for the emergence of "Giffen commodities". One is that the purchasers have low income and cannot find a more suitable substitute; the other is that potatoes are a necessity.For example, the price of meat is much higher than that of potatoes. You can not eat meat for a period of time but you must eat staple food every day, and the cheapest staple food is potatoes.When the price of potatoes rises, it means that the real income of consumers will drop. In order to ensure basic food and clothing, even if the price of meat falls, consumers will still reduce their purchases of meat and buy more potatoes to survive. .

Economists believe that the Giffen phenomenon is an abnormal phenomenon in the market economy and an exception in the law of demand, but it is an objective phenomenon that people cannot avoid.The definition of the law of demand is "when other conditions remain unchanged, the price demanded and the quantity demanded have an inverse relationship".Here we need to point out its premise, that is, "other conditions remain unchanged".This invariance actually covers many concepts about demand, such as demand elasticity and supply elasticity.If it rains heavily, although the price of umbrellas at the subway entrance is higher than usual, the sales volume is still rising. The key reason is not the price increase, but the sudden heavy rain in the sky, that is, the "other conditions" of the law of demand have changed.At this time, the elasticity of demand decreases sharply, and it is no longer sensitive to price.In this case, as long as the price is not ridiculously high, people will buy it.Just imagine if the rain is not very heavy and people can rush to the store to buy, the high-priced umbrellas of the hawkers will naturally be ignored.The same principle applies to Irish farmers.The price of potatoes has risen but the demand has increased because people's income is limited and they can only choose potatoes.At the same time, under the pressure of the famine, they expected that the price would rise again, so they rushed to buy.From this point of view, the Giffen phenomenon does not mean overthrowing the law of demand.

The Giffen phenomenon is often exploited by businesses.American Robert?There is such a story in the book "Influence" written by Cialdini.

In a tourist attraction in Arizona, USA, a new jewelry store selling Indian jewelry has opened.Since it is the peak tourist season, the jewelry store is always full of customers, and all kinds of high-priced silver jewelry and gem jewelry are selling well.Only a batch of lustrous and cheap turquoise is always ignored.In order to get rid of it as soon as possible, the boss tried many methods, such as placing the turquoise in the most conspicuous place and asking the clerk to make a strong sales promotion.

However, all of this was in vain.Before going to other places to purchase goods, the boss decided to dispose of the turquoise at a loss.Before the trip, she left a note to the clerk: "All turquoise jewelry, the price is multiplied by half." When she returned from the purchase, all the turquoises were sold out.The clerk told her excitedly that since the price increase, that batch of turquoise has become the signature product in the store. "Price increase?" The boss widened his eyes.It turned out that the careless clerk mistook the "multiply by [-]/[-]" in the note as "multiply by two".

Under specific environmental conditions, the causes of Giffen phenomenon are also different.In Ireland at that time, the more expensive the more people bought, it was a last choice for people to survive in poverty.In a very catastrophic period, people buy more and more expensive products out of a kind of panic, fearing that the price will rise even higher in the future.As for some jewelry, clothing, gifts, etc., the more expensive people are, the more they buy it to show their worth and improve their social status.

[links to related words]

A Giffen commodity is a commodity for which, if the price of a commodity rises, the demand for it will increase, other factors being held constant.Phenomena related or similar to this are known as Giffen phenomena.

(End of this chapter)