Understanding Giffen Behavior as an Extreme Case of Asymmetric Substitutability
62 Pages Posted: 23 Dec 2003
Date Written: November 2003
Microeconomic textbooks explain Giffen behavior as an extreme case of negative income effects. This focus on income effects is reflected in the numerical examples of preferences mappings that are provided in textbooks, namely preferences involving zero elastic income effects (quasilinear preferences) and unit elastic income effects. This paper shows that additional insight into Giffen behavior can be obtained by considering it as an extreme case of asymmetric substitutability. The paper derives numerical examples of preferences where one good is neither a substitute nor a complement, where one good is neither price elastic nor price inelastic, and where one good is neither an ordinary good nor a Giffen good. These corner-case preferences can be used to gauge any given preference mapping against.
JEL Classification: A22, D11
Suggested Citation: Suggested Citation