On 30/5/2007 5:49 PM, Robin van Spaandonk wrote: > In reply to Harry Veeder's message of Wed, 30 May 2007 13:41:29 -0500: > Hi, > [snip] >> On 29/5/2007 12:01 AM, Robin van Spaandonk wrote: >> >>> In reply to Harry Veeder's message of Mon, 28 May 2007 21:17:21 -0500: >>> Hi, >>> [snip] >>>> <<Marshall wrote in the 1895 edition of Principles of Economics: >>>> As Mr. Giffen has pointed out, a rise in the price of bread makes so large >>>> a >>>> drain on the resources of the poorer labouring families and raises so much >>>> the marginal utility of money to them, that they are forced to curtail >>>> their >>>> consumption of meat and the more expensive farinaceous foods: and, bread >>>> being still the cheapest food which they can get and will take, they >>>> consume >>>> more, and not less of it.>> >>>> >>>> >>> That may well be true, however I suspect that if the price of bread went up >>> to >>> that extent, then probably the price of everything else did as well. >>> >>> Regards, >>> >>> Robin van Spaandonk >>> >>> The shrub is a plant. >>> >> >> >> Your position is a giffen good only exists a mistake of interpretation. >> > > Not quite. Giffen suggested that people bought more bread because the price of > bread went up. I'm saying that the more likely reason is that the price of > everything went up, and they only had money for bread, which was still cheaper > than everything else. If only the price of bread had gone up, then they would > likely have shifted to e.g. potatoes, which would then have been relatively > cheaper.
One of the preconditions for existence of a giffen good is that no close substitute good is readily available. from the wiki site: <<There are three necessary preconditions for this situation to arise: 1. the good in question must be an inferior good, 2. there must be a lack of close substitute goods, and 3. the good must constitute a substantial percentage of the buyer's income.>> More clarification at the site. >> >> Westerners have become so dependent on oil consumption that we will continue >> to buy more of it even as the price rises. > > This is only true to some extent, see Jed's reply. > >> It is too late to expect rising >> oil prices to reduce the demand for oil. People complain and complain about >> the price but still the demand rises. > > Is the demand rising in the US? World wide it certainly is, but I think this > is > primarily a consequence of the economic boom in India and China resulting in > lots more people being able to afford cars. > >> >> Reducing the demand for oil will require government supported and _mandated_ >> technological shifts. > > The demand for oil will drop when a cheaper alternative becomes available. > Regards, > This is consistent with the proposition that oil has become a giffen good. Harry
