Purchasing-power-dependent Preferences as a New Explanation of Giffen Behaviour: A Note

Clemens Heuson ()

Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), 2011, vol. 231, issue 4, 516-521

Abstract: This paper develops an example beyond traditional microeconomic theory that provides a new explanation of Giffen behaviour. Maslow’s hierarchy of needs suggests that an individual’s preferences are not fixed but, rather, depend on purchasing power. A decrease in purchasing power with respect to low-hierarchy goods (e.g., bread) is likely to augment an individual’s preferences for such goods and to weaken preferences for high-hierarchy goods (e.g., books). By introducing a simple purchasing-power-dependent utility function that satisfies the standard assumptions, it is shown that the preference-shifting effect can provoke Giffen behaviour.

Keywords: Giffen behaviour; purchasing power; preferences; Giffen behaviour; purchasing power; preferences (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:jns:jbstat:v:231:y:2011:i:4:p:516-521

DOI: 10.1515/jbnst-2011-0405

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