Giffen Goods & Irish Potatoes Someone ("Shawn A. Wilson" ??) wrote: |-No, Giffen goods (which I personally don't believe exist) are inferior goods |-where the income effects are stronger then the substitution effect. So when |-the price of the good rises, the substitution effect causes consumption of |-the good to fall, but the stronger income effect causes consumption to rise |-even more. So higher prices of the good would be associated with greater |-consumption, an upward sloping demand curve. |- cpw@rahul.net: For some reason, Giffen Goods stand out clearer in my memory from the few economics courses I took than almost anything else, perhaps because they were so non-essential to the general thrust of the courses. As I recall, the concept arose because when the price of potatoes went up in Ireland, the Irish started buying more of them, presumably because since they had to buy a lot of potatoes anyway, and with the price increase they had less disposable income for anything else. One of my economics professors was from rural Georgia, and he suspected that in that part of the world, gasoline was a Giffen Good because there the primary entertainment was driving around; you were going to do that no matter what, and if the price of gasoline went up, you'd have less money for other kinds of entertainment so you'd end up doing even more driving around. He was remembering the big increases in the price of gasoline in the 70s. Jim Blair: Hi, Neither of these seem likely to me. As potatoes became more expensive, I would expect people to switch to other foods. If they changed to eating even more potatoes, I would try to find out if alternate foods increased in price even more. That is, if the price of potatoes doubled, but all other foods tripled, then eating more potatoes would make sense. As for gas in the 1970's, as prices increased, consumption per person dropped as people formed car pools, rode the bus more, and bicycles became more popular. The only example I have ever read of where increased prices resulted in increased consumption was in Beverly Hills (or some such place, where people have more dollars than sense). A guy named Jack would walk dogs for $1.00 an hour. Only a few people were interested. Then he got an idea. He changed his name to Jacques and raise his price to $10.00 an hour. And he was swamped with business. Subject: Re: Giffen Goods Date: 28 Jan 1999 06:44:46 GMT From: flpalmer@ripco.com (Frank Palmer) Organization: Ripco Internet Services- Chicago Newsgroups: sci.econ References: 1 , 2 , 3 , 4 Jim Blair (jeblair@facstaff.wisc.edu) wrote: : jim blair: : But I thought the claim was that they bought MORE potatoes at the : higher price. .... : means). I am trying to understand your example of potatoes in Ireland : during the famine of the 1840's as being a Giffen Good. : > this : > only applied to people who preferred other foods but could only afford : > potatoes. : ... : > Joe O'Brien has $2.00 per week and the use of a cottage. He buys 10 lb. of : > potatoes at $0.10 /lb. and 1 lb. of beef at $1/lb. What does he buy when the : > price of potatoes goes to $0.15 /lb.? : Even with your example, the point is not clear. I suppose he might buy : only 1/2 pound of meat for 50 cents and 10 pounds of potatoes with the : remaining $1.50, still spending $2.00 on food and not buying any MORE : potatoes than before: just paying more money for the same number of : potatoes. But he still needs some meat because the potatoes don't : provide the protein he needs. And where does he get the calories which were in the extra half pound of beef? : I suppose I might find a situation where he would buy MORE potatoes : because of the increase, but you didn't. Unless, of course, you understand that people can't live without coloric intake. : Actually, I looked in two different introductory economics texts, and : neither even had Giffen Goods listed in the index. And I was looking for : a reference to the specific case of potatoes in Ireland. : -- Since that wasn't my example in the first place, I don't have a reference off hand. For that matter, my example used rice and beans, and it was a "suppose" example. -- Frank Palmer flpalmer@ripco.com REPLY Jim Blair to Frank Palmer: Your example is not realistic, but it does help explain the concept. It is not realistic because the energy content of potatoes is about 300 calories (actually kilocalories) per pound. So his 10 pounds of pototoes provide about 3000 cal. The pound of meat might provide anywhere from 200 to 1000 cal, depending on the kind and fat content of the meat. That is 4000 cal per week, maximum. This is not enough: a "starvation diet" is about 1500 cal per day or over 10,000 cal per week. So your Joe is not going to live very long on that $2.00 no matter what he buys, even BEFORE the potato price increase. And if you learn something about physiology you will discover that it would be a bad move on his part to cut out meat and spend all his money on potatoes. I will quote a short exerpt from the Scientific American article "The Physiology of Starvation" by Vernon R. Young and Nevin Schrimshaw, from the October 1971 issue. "The edema of famine is hardly ever seen in cases of total starvation but develops often in semi-starvation. Moreover, a semistarved person's survival time may actually be shortened if he tries to subsist on a diet consisting mainly of carbohydrate and deficient in protein." The article then explains why eating carbohydrates in the absence of protein leads to kwashiorkor, where the body destroys its own proteins to metabolize the food. The claim is that this was a factor in some famines. So this could have played a role in the Irish potato famine. And I can see from this that in some cases, if X is the cheapest source of A, but also the least desirable source, an increase in the price of X could lead to an increase in the sale of X. Is this what Giffen Good means? Or is it ANY case of increased sales as a result of a higher price? AS for example the perception of increased quality? ,,,,,,, _______________ooo___(_O O_)___ooo_______________ (_) jim blair (jeblair@facstaff.wisc.edu) Madison Wisconsin USA. This message was brought to you using biodegradable binary bits, and 100% recycled bandwidth. For a good time call: http://www.geocities.com/capitolhill/4834 From: rvien@see.sig.com (Robert Vienneau) Organization: Posted via RemarQ, http://www.remarQ.com - Discussions start here! Newsgroups: sci.econ References: 1 , 2 , 3 , 4 , 5 flpalmer@ripco.com (Frank Palmer) wrote: > Since that wasn't my example in the first place, I don't have a reference off > hand. For that matter, my example used rice and beans, and it was a "suppose" > example. I did a Metacrawler search on "Giffen" and "Potato". 18 references are returned. Among these are: http://bighurt.gsia.cmu.edu/Phd/46900/choice1/choice1.html - A tutorial on the neoclassical theory of consumption http://web.mit.edu/athey/www/14.03/probsets/ps2.html - A microeconomics problem set requiring the student to work through an example of Giffen goods. http://www.econ.bbk.ac.uk/pcf/pcfmic03.html - Another microeconomics problem set requiring the student to work through an example of Giffen goods. I, too, think the question of whether potatos among the Irish are an example of Giffen goods is a different question than understanding what Giffen goods are. -- Robert Vienneau AND: plawrence@arcbs.redcross.org.au >The potatoes-as-Giffen-Good example has usually been a poor one, >because people have been presenting Ireland in the 1840s as relevant >evidence. Actually, potatoes, rice, etc. can only work as Giffen >Goods in a cash context, and what was happening in Ireland was (mostly) >a different effect. In happier times most peasants were living off >their own produce and paying rent, either in cash or in kind (including >labour). The cash measurements might include rent in kind, but rarely >captured the subsistence farming side - it just didn't show up in the >statistics. When famine struck one area but spared the next (for a >while) some could draw down savings to make up the food shortfall >by purchases. Naturally this showed as an increase both in measured >consumption and in prices. The catch is that unmeasured subsistence >consumption was falling, and has to be inferred to correct the >statistics. We can really only get the Giffen Good effect by >confining ourselves to town consumption or similar, so we can >correct for changes in substitution from the subsistence economy. PML. Mark Patrick Witte [mwitte@merle.it.northwestern.edu]: The Giffen good example is one of a price change creating a relative price change and affecting income through reducing the purchasing power. The example you give is one where the price change either has no effect since people are not trading or has a compensating income effect since people are producing potatoes. I don't know of any serious work that found a Giffen effect in Irish potatoes and there is no evidence that Robert Giffen ever wrote out anything like the standard effect attibuted to him, although Simon Gray did some years before Giffen's birth. (See George Stigler, JPE 1947) AND FINALLY Take a look at Putting All Your Potatoes in One Basket by Steve Landsburg at: http://slate.msn.com/default.aspx?id=102180