To the Question of Giffen's Parafox
https://doi.org/10.33293/1609-1442-2020-1(88)-7-21
Abstract
The article is devoted to the construction and analysis of the simplest mathematical model illustrating the Giffen’s effect and the reasons and conditions for its manifestation. We analyse erroneous, but widely spread, ideas about Giffen’s goods as a good, the demand for which grows due to its relative cheapening against the rising prices for all consumed goods. Under the model it is shown that any good can be both valuable and of little value, at least if it has a more expensive substitute. This property is not an intrinsic and inalienable property of one or another good. The certain property is given to any good by a specific consumer due to its personal preferences and under the influence of existing prices. Inferior good, including such, the consumption of which is available only to an individual with a high level of income, may turn out to be a product of Giffen. Therefore, the consumption of Giffen goods cannot be considered as evidence of a low standard of living for the consumer. Because of the solution of the standard task on the consumer choice, it is shown that the increase in demand for an inferior good when its price is growing, which is the essence of the Giffen paradox, is the result of optim. It is shown that for the manifestation of the Giffen effect it is necessary that the amount of funds allocated by the consumer for acquiring low value good and its more expensive substitute gets into a certain rather narrow range of values.
About the Author
Vladimir I. Tsurikov
Kostroma State Agricultural Academy,
Kostroma
Russian Federation
Russian Federation
References
1. Andreev G. G. (2015). From textbook to textbook: On the issue of non-critical borrowing. The civilization of knowledge: Russian realities. Proceedings of 16 Int. Scientific Conference, pp. 370–376 (in Russian).
2. Blaug M. (2004). The methodology of economics, or, How economists explain. Moscow, NP Voprosy ekonomiki (in Russian).
3. Bychkova I. I. (2016). Approaches to the formation of criteria for competitive banking products and services. Finansovy`e issledovaniya [Financial Studies], no. 4 (53), pp. 85–91 (in Russian).
4. Vasilyeva M. V., Kiseleva K. D. (2016). Comparative analysis of exceptions to the law of demand. Novy`j vzglyad. Mezhdunarodny`j nauchny`j vestnik [ New view. International Journal of Science], no. 11, pp. 170–177 (in Russian).
5. Galperin V.M., Ignatiev S.M., Morgunov V.I. (1999). Microeconomics: a textbook for university students. In 2 vols. Vol. 1. SPb.: Ekonomicheskaya shkola (in Russian).
6. Grebnev L. S. (2011). Economics: a textbook for university students. Moscow, Logos (in Russian).
7. Dmitriev A. G., Kozeletskaya T.A., German E.A. (2010). The theory of consumer demand: The curve of individual demand and the Giffen effect. Zhurnal e`konomicheskoj teorii [Journal of Economic Theory], no. 2, pp. 214–222 (in Russian).
8. Zamkov O.O., Tolstopyatenko A.V., Cheremnykh Yu.V. (2001). Mathematical methods in economics. Moscow, Delo i servis (in Russian).
9. Intriligator M. (2002). Mathematical optimization and economic theory. Moscow, Ajris-press (in Russian).
10. Kozyrev V.M. (2015). Economic school for graduate students in the history and methodology of economic science. Theory of Consumer Behavior: Essence, Initial Foundations and Practical Aspects. Vestnik RIAT, no. 1, pp. 46–59 (in Russian).
11. Kotova G.A., Rakviashvili A.A. (2010). Economic reality and abstraction of economic theory. Vestnik Moskovskogo un-ta. Ser. 6. E`konomika [Bulletin of Moscow University, ser. 6. Economy], no. 6, pp. 3–12 (in Russian).
12. The course of economic theory: Studies. Manual for university students (2007). Hands. auth. number of lectures and scientific. ed. A.V. Sidorovich. Moscow, Delo i servis (in Russian).
13. Marshall A. (2007). Fundamentals of economic science. Moscow, Eksmo (in Russian).
14. Nureev R. M. (2014). The course of microeconomics: A textbook for university students. Moscow, Normа: INFRA-M (in Russian).
15. Slutsky E. E. (2010). To the theory of the budget of the consumer. Economic and statistical works: Favorites. Ed. P. N. Klyukin. Moscow, Eksmo, pp. 448–485 (in Russian).
16. Tsurikov A.V., Tsurikov V.I. (2004). On one model of consumer choice. E`konomika i matematicheskie metody` [Economics and mathematical method], no. 3, pp. 110–114 (in Russian).
17. Hicks J.R., Allen R.G.D. (2000). Revision of the theory of value. Milestones of economic thought. Vol. 1. The theory of consumption and demand. Ed. V.M. Halperin. Saint Petersburg, Ekonomicheskaya shkola, pp. 117–141 (in Russian).
18. Battalio R.C., Kagel J.H., Kogut C.A. (1991). Experimental confirmation of the existence of a Giffen good. The American Economic Review, vol. 81, no. 4, pp. 961–970.
19. Biederman D.K. (2015). A strictly-concave, non-spliced, Giffencompatible utility function. Economics Letters, vol. 131, is, pp. P. 24–28.
20. Doi J., Iwasa K., Shimomura K. (2009). Giffen behavior independent of the wealth level. Economic Theory, vol. 41, no. 2, pp. 247–267.
21. Dougan W.R. (1982). Giffen goods and the law of demand. Journal of Political Economy, vol. 90, no. 4, pp. 809–815.
22. Dwyer G.P., Lindsay C.M. (1984). Robert Giffen and the Irish potato. The American Economic Review, vol. 74, no. 1, pp. 188–192.
23. Haagsma R.A (2012). Convenient utility function with Giffen behaviour. ISRN Economics, Sept. 19. URL: https://www.hindawi.com/journals/isrn/2012/608645/.
24. Hicks J.R., Allen R.G.D. (1934). A reconsideration of the theory of value: part I. Economica, vol. 1, no. 1, pp. 52–76.
25. Jensen R.T., Miller N.H. (2008). Giffen behavior and subsistence consumption. The American Economic Review, vol. 98, no. 4, pp. 1553–1577.
26. Jensen R.T., Miller N.H. (2007). Giffen behavior: Theory and evidence. NBER Working Paper, July, no. 13243.
27. Lipsey R.G., Rosenbluth G.A. (1971). A contribution to the new theory of demand: A rehabilitation of the Giffen good. Canadian Journal of Economics, vol. 4, no. 2, pp. 131–163.
28. Nachbar (2013). Giffen behaviour in Irish famine markets: An empirical study. CWPESH, no. 15.
29. Rosen S. (1999). Potato paradoxes. Journal of Political Economy, vol. 107, no. 6, pp. S294–S313.
30. Silberberg E., Walker D.A. (1984). A modern analysis of Giffen's paradox. International Economic Review, vol. 25, no. 3, pp. 687–694.
31. Sørensen P.N. (2007). Simple utility functions with Giffen demand. Economic Theory, vol. 31, no. 2, pp. 367–370.
32. Spiegel U. (1994). The case of a Giffen good. Journal of Economic Education, vol. 25, no. 2, pp. 137–147.
33. Stigler G.J. (1947). Notes on the history of the Giffen paradox. Journal of Political Economy, vol. 55, no. 2, pp. 152–156.
34. Zhu D. (2016). The mechanism of Giffen behaviour. RISE Working Paper, no. 201603.
35.
Review
For citations:
Tsurikov V.I. To the Question of Giffen's Parafox. Economics of Contemporary Russia. 2020;(1):7-21. (In Russ.) https://doi.org/10.33293/1609-1442-2020-1(88)-7-21
Views:
1440
Email this article 