Giffen Good Example - Price Change, Income and Substitution Effect - Intro to Microeconomics

We analyze the effect of a price decrease on the consumption of a Giffen good - breaking this down into income and substitution effects.
Where normally, when the price of a good goes down, we expect our consumption of that good to go up (this is true certainly for normal goods, and even so for inferior goods), but with Giffen goods, paradoxically our consumption of a Giffen good decreases. We use budget lines and indifferent curves to see how this effect comes about.

[@hero4fun560]

Thank you for the awesome video! 8 years gone by and your video is still helping people out. respect

[@economicurtis]

Thank you. It was my pleasure. Students seemed to have trouble with this over the summer. So I thought I'd help out.

[@calvinc2377]

Best explanation i've seen so far... thank you!

[@sbudabana4801]

Isn't the demand for the giffen good suppose to go down as it's price decreases? and the opposite being true?

[@flyingsoul7147]

exactly

[@Ree_Soo10]

I think the budget line show how much of a good you can afford to buy which is why despite being a giffen good, as its price decreases, the BL of good B pivots outward since you can now buy more of it with the same income. But the outward rotation doesn't necessarily mean you will buy more. It just implies you can afford to buy more I guess.

[@qiwan2721]

@@Ree_Soo10 thanks for the explanation, this helps a lot!

[@vasudharani9643]

Thank you sir. Can I have the numerical values for the same information please

[@kaibrown5892]

mate your video was a lifesaver, love the great work you do !

[@meteranofthisgame]

Amazing teacher you are. break down everything much more simpler than my teacher. Thank You!

[@ashikaraj1291]

Hi, could you please tell me what will be this if the price for the Giffen good is increasing

[@JunaidAumi]

+Ashika Raj just the opposite. the substitution effect would be negative, the income effect would be positive and the total effect would be positive, since income effect is dominant for giffen goods.

[@ruptalinrongpipi7223]

I'm stuck in one of the question .What will be the slope of the engel curve in case of giffen goods?

[@hendymustikoaji5019]

If Good B is giffen good, should not the budget line move inward not outward?

[@economicurtis]

Sorry about the audio - I have hopefully resolved that issue with recent videos. At least the content on this was helpful!! Thanks!

[@SpacedFiction]

I thought as the price of a Giffin good goes down demand goes down too? How can the substitution effect cause an increase in consumption of a giffin good?

[@riccardoeugeni3640]

The final effect on demand is a result of income & substitution effect. When price goes down a rational consumer will always substitute a relatively more expensive good with a relatively cheaper good, regardless of the nature of the good. In fact, the substitution effect is always positive for normal, inferior and giffen goods. The overall effect on quantity demanded depends on the "strength" of the income effect. In the case of giffen goods, income effect is "stronger" than the substitution effect and goes in the opposite direction of the change in real income (negative nature of YED for giffen goods). So, if the price of a giffen good goes down, the substitution effect will cause an increase in quantity demanded but the overall effect on quantity demanded will be negative because of the strength of the income effect. I hope this helps!

[@aliraza-mj9kd]

what if good on y-axis is inferior and price of good y changes?? help

[@harryj5734]

hwo would you show thr effects when there is an increase in the budget/income but the 2 goods prices stay the same?

[@marthenrobinsonpellokila7445]

In the case of Giffen goods you will not be able to derive demand function because Giffen goods violate demand function

[@marylim6970]

Could I ask what kind of tool you use to draw the graph? sorry for my bad English

[@oneinabillion654]

Hi, so for a giffen good, the indifference curve can be altered to make it look like a decrease in QB, when PB decrease? I thought the indifference curve must be similar even when shifted up or down?

[@helencheung6242]

What's the amazing tool you use to draw these graphs??? I have so much trouble drawing it freehand on paper, I would love to be able to use an app like this.

[@tanishd5177]

Ig he is using website called conceptboard

[@oneinabillion654]

Giffen good came out in CIE A level although its not in textbook. WTF

[@hunzalaiqbal1104]

Here for the same dam reason 😂

[@oneinabillion654]

@@hunzalaiqbal1104 Hahaha. My teacher saw a question in MCQ talking about this and I was shook. BTW, you taking A2 this May?

[@hunzalaiqbal1104]

@@oneinabillion654 haha lol I found it this in Essays questions. yes, this may … just few weeks to go 😌 best of luck 😉

[@SomEbodyisDERP]

@@hunzalaiqbal1104 How was your exam guys? I'm doing my mock exam that'll be used to predict my A2 grade cause of Corona stuff. But I'm curious what your grade was!

[@hunzalaiqbal1104]

@@SomEbodyisDERP I secured A grade by the grace of almighty Allah It is manageable if you focus on your analysis and evaluation skills Marks are not given on how interesting or good the point is Rather marks are given on how well you done analysis and evaluated it Good luck

[@azmirakash8767]

Where is the price increase effect for giffen goods

[@orbayasdmasldmk]

Man it was good but your two indifference curves were touching each other which is against the logic of indefference curves isnt it ?

[@economicurtis]

You mean starting at 6:52? You're right, they should be infinitesimally separated. It's hard to draw correct indifferent curves for Giffen goods!

[@orbayasdmasldmk]

indeed it is lol

[@PIayerUnKnown]

Very helpful :) Appreciate your detailed explanation!

[@ZlatanKakaTorres786]

Don't know how but you teach better than my University of Toronto Prof... awesome job!

[@keshavvkishore6671]

Very nice video... I like it.. Thankx man

[@AurangzaibLaghari]

Hey, it's a good explanations Thanks, Can i Have a this Mathematica code ? Please.

[@jyy4334]

This was alot of help. Thank you so much!

[@yowanyowan5168]

Thanks sir I learnt lot

[@economicurtis]

Sorry about the audio - I've hopefully fixed that issue with recent videos -- I'm happy at least the content was helpful for this one!

[@pakosebolaaphuti6244]

Thank you so much for this

[@and_official6139]

Great explanation! Thank you weary much ! I'm writing an essay on this topic, could you by any chance send me the pictures that you used in this video ?

[@sumanchowdhury9549]

SOME JUST DONT UNDERSTAND FACT ,JUST CANT STOP TO ACT OF KNOWING ALL

[@amanarora9]

very helpful

[@Megane.Senpai]

How can a line be parallel to an indifference curve man? You gotta think before you speak!!!! PS: I guess you wanted to say Tangent to the old IC.

[@economicurtis]

Cool. Thanks!

[@jojsdfsdfsd]

ajaz hussain is going to haunt you down

[@AJPWPRFU]

I LIKE!! *Borat Voice*

[@tiagofernandes3406]

wrong, substitution effect is always negative

[@vasudharani9643]

Thank you sir. Can I have the numerical values for the same information please