A well-behaved utility function can generate Giffen behavior

Junko Doi, Kazumichi Iwasa and Koji Shimomura
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Junko Doi: Department of Economics, Kansai University (Japan) and Kyoto Sangyo University (Japan)

No 181, Discussion Paper Series from Research Institute for Economics & Business Administration, Kobe University

Abstract: We present a specific utility function which generates Giffen behavior. The derived demand function of each good is not only continuous in its price and income but also partly increasing in its price and decreasing in income. Moreover, we show that Giffen behavior is compatible with arbitrary level of utility; thus the standard "margarine-butter paradigm" may not adequately explain Giffen's paradox.Length: 21 pages

Date: 2006-02, Revised 2006-05
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