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MENTAL MODEL · M1684

Giffen Good

Giffen Good
BusinessHigh supportEconomics
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Version 1.0.0 · Updated 2026-07-30

CORE DEFINITION

An inferior good whose demand increases as its price rises: a price increase makes poorer consumers even less able to afford substitutes, so they consume more of it, violating the law of demand.

SCAFFOLDING EFFECT

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In microeconomics and consumer theory, a Giffen good is a product that people consume more of as the price rises and vice versa, violating the law of demand. For ordinary goods, as the price of the good rises, the substitution effect makes consumers purchase less of it, and more of substitute goods…

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A Giffen good is a special product whose demand increases when its price rises, violating the law of demand. It must satisfy two conditions: it is an inferior good for low-income consumers and accounts for a large share of their budget. When the price rises, the income effect (consumers can no longer afford more expensive staple foods, are forced to cut back on meat and eggs, and consume more of this staple) outweighs the substitution effect (switching to other goods), so total quantity demanded does not fall but rises. Essentially, it is an extreme case where the income effect dominates the substitution effect for a high-weight inferior good.

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Source support: Explicit

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    en.wikipedia.orghttps://en.wikipedia.org/wiki/Giffen_goodZH · Explicit
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