W hen you walk into a store, you are confronted with thousands of goods that

450 PART VII 
tOpICS FOr FUrther StUDY
FIGURE
12
A Giffen Good
In this example, when the 
price of potatoes rises, the 
consumer’s optimum shifts 
from point C to point E. In this 
case, the consumer responds 
to a higher price of potatoes 
by buying less meat and more 
potatoes.
Quantity
of Meat
A
Quantity of
Potatoes
0
E
C
I
2
I
1
Initial budget constraint
New budget
constraint
D
B
2. . . . which 
increases
potato
consumption
if potatoes
are a Giffen
good.
Optimum with low
price of potatoes
Optimum with high
price of potatoes
1. An increase in the price of
potatoes rotates the budget
constraint inward . . .
The Search for Giffen Goods
Have any actual Giffen goods ever been observed? Some historians 
suggest that potatoes were a Giffen good during the Irish potato famine 
of the 19th century. Potatoes were such a large part of people’s diet that 
when the price of potatoes rose, it had a large income effect. People responded 
to their reduced living standard by cutting back on the luxury of meat and buying 
more of the staple food of potatoes. Thus, it is argued that a higher price of pota-
toes actually raised the quantity of potatoes demanded.
A recent study by Robert Jensen and Nolan Miller has produced similar but 
more concrete evidence for the existence of Giffen goods. These two economists 
conducted a field experiment for five months in the Chinese province of Hunan. 
They gave randomly selected households vouchers that subsidized the purchase 
of rice, a staple in local diets, and used surveys to measure how consumption 
of rice responded to changes in the price. They found strong evidence that poor 
households exhibited Giffen behavior. Lowering the price of rice with the subsidy 
voucher caused households to reduce their consumption of rice, and removing 
the subsidy had the opposite effect. Jensen and Miller wrote, “To the best of our 
knowledge, this is the first rigorous empirical evidence of Giffen behavior.”
Thus, the theory of consumer choice allows demand curves to slope upward, 
and sometimes that strange phenomenon actually occurs. As a result, the law 
of demand we first saw in Chapter 4 is not completely reliable. It is safe to say, 
however, that Giffen goods are very rare. 

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