This is a paradoxical concept in economics an example of which is shown in the price-demand curve in the first visual. Historically, the most famous example of this phenomenon is shown in the second visual. However, recently this has been debunked and the third visual is suggested as an example of this phenomenon. Identify the phenomenon.
Answer: The phenomenon is that of the Giffen good. The classic example was thought to be potatoes during the Irish famine but this was recently debunked. Gasoline is thought to be a modern example. See Swapnaa's comments for more details. Swapnaa, Rahul Trivedi, Hirak, Trevor Burnham, Iam and Raghu got it. Well done.
6 comments:
Giffen goods. When a normal product becomes expensive, substitution effect dictates that it will be substituted by a cheaper product. However, when a certain product has no near substitutes available in the market, (its dubbed "Giffen good" after the economist Robert Giffen), more money is spent on procuring it. The traditional example is potatoes (cheap staple) vs meat (expensive non-substitute).
I guess gas is an example in today's context - staple for everyone in the developing world, but no close substitute is available. So people spend more and more on it (even as the prices rise) in order to get the same amount of gas.
Gas as a giffen good?
Giffen good.
I believe that would be a Giffen good. The picture is of the Irish potato famine.
http://en.wikipedia.org/wiki/Giffen_good
Giffen Paradox
Irish famine
The world suffering severe "Gas" problems
Giffen Goods -- Goods that defy substitution theory, which says that, as price of one good increases, it is substituted by another (bananas & biscuits).
The Irish potato famine was wrongly thought to be caused by a giffen good (potatoes in this case).
Gasoline is conjectured to be one too.
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