Definition
Giffen and Veblen Goods
Giffen and Veblen goods are rare exceptions to the law of demand: people buy more of them when prices rise, for opposite reasons of poverty and prestige.
A Giffen good is a cheap staple (classically a basic grain) for poor consumers; when its price rises, they can't afford pricier alternatives and buy even more of the staple. A Veblen good is a luxury (designer bags, premium cars) whose appeal grows with price as a status symbol.
Both defy the usual downward-sloping demand curve. In India, some basic foodgrains have shown Giffen-like behaviour among the poor, while luxury and premium brands exhibit Veblen effects among the affluent.
Related terms
- Income Elasticity of DemandIncome elasticity of demand measures how demand for a good changes as consumer incomes change, distinguishing normal goods, luxuries and inferior goods.
- Monopolistic CompetitionMonopolistic competition is a market with many firms selling differentiated products, each with some pricing power from branding but facing easy entry that erodes long-run profits.
- Substitution EffectThe substitution effect is the change in how much of a good people buy when its price changes and they switch toward relatively cheaper alternatives, holding real income constant.
- Price Elasticity of DemandPrice elasticity of demand measures how sharply the quantity people buy responds to a change in price; elastic goods react strongly, inelastic ones barely react.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.