Giffen Goods and the Law of Demand

Abstract

The paradoxical aspect of the Giffen Paradox is the inability of demand theory to explain why Giffen goods are apparently so rare. The resolution of the paradox arises from the distinction between the shape of market demand curves and the sequence of equilibrium prices that will be observed in markets in which quantity supplied changes. The sense in which the Giffen case is "unlikely" to occur is that the probability of identifying a Giffen good is less than the probability that such a good exists.