Giffen Behavior, Income Effects and Austrian Price Theory

Karl-Friedrich Israel ()
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Karl-Friedrich Israel: UCO - Université Catholique de l'Ouest

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Abstract: Austrian price theory is riddled with inconsistencies surrounding the neoclassical income eFect and GiFen behavior. It has sometimes been argued that neither the income eFect nor GiFen behavior exist. This paper first argues that GiFen behavior is possible and can perfectly well be explained within the framework of Austrian price theory in the tradition of Mses. Moreover, it shows that income eFects are real. They are merely an outgrowth of the law of diminishing marginal utility applied to money. The paper also outlines the expenditure approach to income and substitution eFects as an alternative conceptualization that does not require any reference to quantifiable and measurable notions of utility, or an unambiguous and objective notion of real income.

Keywords: Price theory; Giffen behavior; Income eFect; Substitution eFect (search for similar items in EconPapers)
Date: 2025-01-15
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