Can raising the price of bread make poor families buy more of it?
Economic theory allows a strange case: a staple so cheap and so essential that when its price rises, the poorest buy more, because they can no longer afford anything better. These are Giffen goods. For a century they were mostly theory, until a 2007 experiment in China found them among very poor households.
Normally a price rise does two things. It makes the good worse value than alternatives, so you switch away, which economists call the substitution effect. And it makes you slightly poorer, the income effect. For almost everything, the net result is that you buy less. A Giffen good is the rare case where the income effect wins: the good is such a basic, inferior staple that a price rise pushes you into buying more of it.
Alfred Marshall popularised the idea in his 1890 Principles of Economics, crediting the Scottish economist Robert Giffen. His example was bread among poor Victorian labouring families. When bread gets dearer, the drain on their budget forces them to give up meat and other more expensive foods, and bread, still the cheapest filling option, fills the gap. George Stigler pointed out in 1947 that the attribution was shaky, and a similar account appears in an 1815 book by Simon Gray.
Three conditions have to line up: the good must be inferior, there must be no close substitute, and it must take up a big share of a buyer's income without them being so poor that they eat nothing else. That is why evidence has been scarce. The famous story that Irish potatoes behaved this way during the Great Famine has been challenged by several economists; one study found bacon pigs showed Giffen-like behaviour, but potatoes did not.
The strongest evidence came from Robert Jensen and Nolan Miller. In a 2007 field experiment in Hunan and Gansu, they subsidised rice and wheat flour for very poor households. In Hunan, cheaper rice led families to buy less of it, which is Giffen behaviour in reverse. The evidence for wheat in Gansu was weak. Giffen goods are real, it seems, but only in narrow circumstances.
Source: Wikipedia — Giffen good · Text summarised from Wikipedia (CC BY-SA 4.0)
