Giffen Good

If you travel to any city in this world, you will observe that the city is demarcated between wealthy neighbourhood and poor neighbourhood. I do not know if this is a political malfunction, but you will see that the wealthier neighbourhood has fresh coats of paints, the traffic zebra lines are clear and discernible and the traffic lights work. Both neighbourhoods have the same elected government. Why does this inequality exist? Is it that the rich have friends in the government, or am I cranky that the poor neighbourhood people are stupid and incompetent?

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We all live in our comfort zone. In fact, most of our time is spent inside this comfort zone. We like to do familiar things. By doing this familiar things, we gain experience. When we gain experience, we are less likely to make mistakes. Since none of us human species likes to make mistakes, with the passing of time and the gaining of experience, we cuddle to a corner called comfort zone, where we make less mistakes and bide our time.

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Giffen Good

Inferior qualities of potatoes, dal, wheat, rice, are some of the staple food items that is absolutely a necessity for the poor and the Below Poverty Level people. Without these, existence would become a question. In economics there is a theory called the Giffen Good. When the price of these essentials rises, demand too rises and because the price rise creates more poverty, poverty in return creates more demand.

Normally in economics, price and demand travels the opposite directions. If price rises, demand goes down and if price falls, demand goes up.

Maybe in India, onions, sugar, most vegetables, rice, eggs, chicken and of course dal are the staple food for the poor people. Otherwise, I don’t see much decrease in the usage of these food items even though prices have shot up.

By the way I wonder what would happen if the price of Tiffany Diamonds, expensive French perfumes/wines, Rolls Royce, Rolex fall. Would the demand go up or would it come down since these are perceived as exclusive or high status products?