Re: [A-List] Global Economy

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>]

You are confuse between income rising and price rising.

An inferior good (price constant) is one that one stops buying (or buys less)
when one's INCOME goes up.

A Giffen good is one that one buys more when its PRICE goes up when one's
INCOME has not changed or rises slower than price.

A superior good (price constant) is one that one buys (not necessarily more)
when one's INCOME rises (faster than price).

Not all goods fit into these three categories.  When they do not, they simply
are called goods.

Perhaps the word "must" is too categorical. Should I have said: "A Giffen good
can often be an inferior good?"

I cannot think of an example where a Giffen good is not also an inferior good.
Otherwise it would simply be a superior good, and not a Giffen good.

If you buy a GE share when its price is constant because your income has risen,
then GE is a superior good to you.
If you stop buying GE shares because you income has increased, then GE is an
inferior good to you.  You might then buy a Rolls Royce instead.
If you buy GE while its price is rising while you income has not changed, GE is
a Giffen good to you.
A Giffen good must be an inferior good because, you must otherwise not buy GE,
unless its price goes up and your income is constant or rises slower than GE
prices.

It sounds confusing because Giffen goods are not easily recognized.

Henry C.K. Liu

bon moun wrote:

> I am actually trying to study this piece.  For those of us uninitiated in
> the lexicon of economics, a glossary would be helpful.  I want to turn this
> kind of material into something accessible for people with an eighth grade
> reading level.  Here's a point I was confused on early.  "A Giffen good
> must be an inferior good, but most inferior goods are not Giffen goods."  I
> get the logic... A dolphin is a whale, but most whales are not dolphins.
> But if an inferior good is one that one buys less of when one's income
> rises, and a Giffen good is one for which prices increases with greater
> consumption... you see where I am disconnecting?
>
> Henry, can you explain this as you would to a child?
>
> The lead sentence in the second paragraph is a great quote, BTW.
>
> Thanks, all.
>
> Stan
>
> "...more and more of our imports are coming from overseas."
>
>            -George W. Bush