What are Giffen Goods?

Giffen Goods refer to those goods which are considered inferior compared to the substitutes. The concept was given by Sir Robert Giffen.  Alfred Marshall first publicized this idea in the 1895 edition of his 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 laboring 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. (p. 208)

To understand the Giffen Goods which is more appropriately Giffen behavior, we can imagine an individual whose diet consists of two foods viz. Bread and Chicken.

The Bread provides high calories but he likes chicken because of the taste. He purchases bread to get the calories required, but whatever money is left, he buys Chicken also to satisfy his taste and preference. If the price of the bread increases, he would buy more bread and would cut the consumption of Chicken, because it is out of his reach now. So, he is no longer able to afford his normal diet bundle and would increase his consumption of bread rather than purchasing Chicken and keeping himself hungry.

The Giffen Goods are an exception to the law of demand.

Conspicuous Necessities. This is again an exception to the law of demand. The lavish spending does not decrease because people spend to attain or maintain a social status.