An ordinary good is a microeconomic concept used in consumer theory. It is defined as a good which creates increased demand when the price for the good drops or conversely decreased demand if the price for the good increases, ceteris paribus. It is the opposite of a Giffen good. The usage of "ordinary good" is still useful since it allows a simple representation of price and income changes. A normal good is always ordinary, while an ordinary good can be normal, inferior or sticky. From Wikipedia, the free encyclopedia.
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It only takes a minute to sign up. What is the difference between an inferior good and a Giffen good? Are the two following definitions for an inferior good equivalent? Def 1: An inferior good is a good for which the demand decreases after a decrease of its price. Def 2: An inferior good is a good for which the income effect leads to a decrease of demand after a relative decrease of its price.
A Giffen good 1 is when after a decrease in price of good 1 the demand for 1 decreases but the demand of some other good 2 increases. Or is Def 1 just the definition of a Giffen good, which is a special type of inferior good? But isn't it also the case for all inferior goods? The change in their demand is going to be negative we consume less after the decrese in price and that change is equal to the sum of SE and IE, so we also get that Income Effect is strong enough to outweigh the Substitution Effect.
Def 1 is wrong. An inferior good is a good for which the demand decreases after a decrease in the agent's income. Definition 2 is trying to define the same concept, "an inferior good" so it is also wrong. Instead, both definitions would be appropriate if they were describing a Giffen good. Giffen goods are indeed a special case of an inferior good. These are goods for which the law of demand does not apply.
Since their demand has a positive relationship with price. The reason why this positive relationship is possible is that when prices change, they create income and substitution effect, and when goods are inferior, these effects go in the opposite direction.
Thus, if the income effect dominates the substitution effect, you get the seemingly counter-intuitive behavior that demand increases when prices go up, and decreases when prices go down a Giffen good. Note that to be a Giffen good you need to be inferior, but the reverse is not necessarily true, for example, if the substitution effect dominates the income effect. It's not always the case that the income effect will outweigh the substitution effect.
The ones that outweigh the substitution effect are the Giffen goods. The ones that don't are just plain inferior goods. Example: Suppose you are on a low nutrious diet because you earn less and can't afford other items.
Now your income increases the demand for your current good decreases. These low nutritional products are your inferior goods. Now, take the case where the price increases for the low nutrious dietary items, but your demand will decrease like any other usual good but will not increase. Sign up to join this community. The best answers are voted up and rise to the top. Home Questions Tags Users Unanswered. Difference between Giffen and inferior goods. Why aren't all inferior goods Giffen goods?
Ask Question. Asked 1 year, 7 months ago. Active 4 months ago. Viewed 3k times. John John 2 2 silver badges 7 7 bronze badges. Your "Def 2" is incorrect. A Giffen good is a special type of inferior good. What are particularities of Giffen goods that are absent in inferior goods? For a Giffen good, demand is upward sloping. Active Oldest Votes. Regio Regio 3, 1 1 gold badge 2 2 silver badges 15 15 bronze badges. Sumukh Sai Sumukh Sai 63 10 10 bronze badges. Sign up or log in Sign up using Google.
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A Giffen good is a low income, non-luxury product that defies standard economic and consumer demand theory. Demand for Giffen goods rises when the price rises and falls when the price falls. The concept of Giffen goods focuses on a low income, non-luxury products that have very few close substitutes. Giffen goods can be compared to Veblen goods which similarly defy standard economic and consumer demand theory but focus on luxury goods.
Income elasticity of demand YED measures the responsiveness of demand to a change in income. A luxury good means an increase in income causes a bigger percentage increase in demand. It means that the income elasticity of demand is greater than one. When income rises, people spend a higher percentage of their income on the luxury good. An inferior good means an increase in income causes a fall in demand. It is a good with a negative income elasticity of demand YED.