Difference Between Giffen Goods and Inferior Goods

In economics, the term ‘goods’ is defined as a commodity that satisfies human wants, i.e. something which provides utility to consumers. Various types of goods are studied in economics, like normal goods, inferior goods, luxury goods, Veblen goods, Giffen goods. Giffen goods are goods whose demand increases with the increase in its price and vice versa.

On the contrary, inferior goods are those goods whose demand decreases with an increase in the consumer’s income. As the income effect of Giffen goods and Inferior goods is negative, the two are commonly juxtaposed for one another. So, this article might help you in understanding the difference between Giffen goods and Inferior goods.

Content: Giffen Goods Vs Inferior goods

1. Comparison Chart
2. Definition
3. Key Differences
4. Conclusion

Comparison Chart

Basis for Comparison	Giffen goods	Inferior Goods
Meaning	Giffen goods refers to those goods whose demand goes up with the rise in the prices.	Inferior goods are goods whose demand falls down with the rise in the consumer's income over a specified level.
What is it?	Exception to the law of demand.	Determinant of demand.
Close substitutes	No	Yes
Demand Curve	Upward Sloping	Downward Sloping
Price Effect	Negative	Positive

Definition of Giffen goods

Giffen goods are described as goods that show direct price-demand relationship, i.e. demand for good increases with an increase in the price, violating the law of demand. When the price of good falls, consumers do not purchase it more, as they seek better alternatives. It is due to the reason that income effect of higher price supersedes substitution effect. It includes those goods which consumers considers inferior and which occupy an essential place in consumer’s budget such as wheat, rice, etc.

Sir Robert Giffen, an economist, revealed the fact that, with the rise in the prices of bread, the British workers purchased more of it, that reverses the general law of demand. The reason behind this is that when the price of bread hiked, it resulted in a huge decline in the spending power of poor people that they were bound to cut down the consumption of expensive goods. And even after the rise in prices of bread, it is still the least costly food item, so the demand for it increased.

Definition of Inferior Goods

Goods whose quantity demanded decreases when the income of the consumer increases beyond a certain level and vice versa, are called inferior goods. In simple terms, the quantity demanded by consumers for such goods are indirectly related to the consumer’s income, and so the income elasticity of demand is negative.

The concept of inferior goods is very well known to consumers and sellers, i.e. it is known to all that millet is inferior in comparison to wheat, kerosene is inferior to cooking gas, bidi is inferior to cigarette and so on. Therefore, such goods have better alternatives regarding quality (called as superior goods). When the income of the consumer rises, he can afford high priced article over low priced one.

Conclusion

At first instance, these two concepts sound same as these two does not follow the basic consumption pattern. Therefore, these goods are treated differently by consumers when there is a change in the market prices and level of income but as discussed above they are different. Giffen goods are a type of inferior goods and so all Giffen goods come under inferior goods, but the reverse is not possible.