Difference Between Giffen Goods and Inferior Goods

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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.

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.

Key Differences Between Giffen Goods and Inferior Goods

The difference between Giffen goods and Inferior goods can be drawn clearly on the following grounds:

Goods whose demand rises with the increase in their prices are called Giffen goods. Those goods whose demand decreases with the increase in the consumer’s income over a specified level are known as inferior goods.
Giffen goods violate the law of demand, whereas inferior goods is a part of consumer goods and services, a determinant of demand.
Giffen goods have no close substitutes. On the other hand, inferior goods have alternatives of better quality.
When there is a fall in price, the overall price effect in the case of Giffen goods will be negative. As against this for inferior goods, the price effect would be positive, when there is a fall in prices.
The demand curve for Giffen goods is upward sloping, but downward sloping for inferior goods.

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.