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Chapter 10: Problem 9

A columnist on forbes.com noted that many poor people have diets that are high in carbohydrates, such as potatoes, rice, or bread, with relatively little protein from meat or fish. He said that as a consumer in this situation, if the price of the carbohydrates in your diet rises, "you'll cut out the more expensive fish, bacon or pork in order to buy more of that basic carbohydrate. And that's what a Giffen Good is." Explain his reasoning that in this situation the carbohydrate is a Giffen good.

Short Answer

Expert verified
The carbohydrate in this situation is considered a Giffen Good because despite an increase in its price, the low-income consumers are consuming more of it by cutting back on pricier items to suffice their basic needs, hence deviating from the conventional Law of Demand.

Step by step solution

01

Definition of Giffen Good

A 'Giffen Good' is a type of product that people consume more of as its price increases. This violates the basic law of demand in economics, which states that as price increases, quantity demanded decreases.
02

Analyzing the columnist's statement

According to the columnist, for a person with a lower income, when the price of a staple (like carbohydrates) increases, the person might cut out more expensive items (like fish, bacon, or pork) to buy more of this basic staple. This happens because when the price of a staple food increases, the consumer's purchasing power decreases. To compensate for this, the consumer will reduce consumption of other, more expensive goods and instead, purchase more of the staple to meet their basic needs.
03

Conclusion

From the given scenario, we can conclude that in certain situations, a good (like carbohydrates) can become a 'Giffen Good'. Despite a rise in price, people might consume more of it due to the necessity of that good, particularly if they have to cut back on more expensive items as a result.

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