1. 8/6/13 What is the difference between a Giffen Good and a Veblen Good? - Yahoo! Answers
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What is the difference between a Giffen Good and a Veblen Good?
5 years ago ( 2009-01-26 07:20:41 +0000 ) Report Abuse
Jen
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A giffen good is a type of inferior good (a good that people buy more of when their income goes down). Giffen goods are goods that are substitutes for a more
expensive good, that people buy more of when they cannot afford a superior good. The classic example of a giffen good is bread for the very poor. If their income
falls, they will stop buying luxuries such as meat, and will buy more bread instead to fill themselves up. The demand for bread falls because people have less money
to spend on it (the income effect), but it also rises because people use bread as a substitute for meat(the substitution effect). In this case, the substitution effect is
larger than the income effect. This example is obviously on relevant to the very poorest, illustrating that a good may be a superior good, an inferior good and a giffen
good for different people. For example, Heinz baked beans might be an inferior good for the poor, as if their income rises they will stop buying own brand beans and
instead buy name brand beans, while for the middle classes they are an inferior good, because if their income falls they will switch from more expensive foods to
baked beans. A veblen good is a good that people buy because it is expensive, as a show of wealth. Therefore it is a superior good with respect to income, but if the
price falls, less of the good will be demanded.
Source(s):
Economics, fourth edition, Alain Anderton
5 years ago ( 2009-01-26 12:04:55 +0000 ) Report Abuse
100% 1 Vote
Daniel O
Benjamin There's no space to fully explain here, but Daniel's answer is completely wrong. I'll just add that in a Giffen good, the income effect is GREATER than
the substitution effect.
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