What is Giffin's Paradox?

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Student (MBA), India

What is Giffin's Paradox?

Within managerial economics, what's the meaning of Giffin's paradox?

  Jaap de Jonge
Editor, Netherlands

Giffen Goods / Giffen Paradox

In economics and consumer theory, a Giffen good is a product or service that people consume more of as the price rises and vice versa—violating the basic law of demand in microeconomics. For any other normal sort of good, as the price of the good rises, the substitution effect makes consumers purchase less of it, and more of substitute goods. In other words, for most goods, the income effect (due to the effective decline in available income due to more being spent on existing units of this good) reinforces this decline in demand for the good.
However a Giffen good is so strongly an inferior good in the minds of consumers (being more in demand at lower incomes) that this contrary income effect more than offsets the substitution effect, and the net effect of the good's price rise is to increase demand for it.
There is little evidence for the actual existence of Giffen goods.

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