Wednesday, September 25, 2013

Is Beer a Giffen Good?

A former student sent me the following article about beer being a Giffen good.  As I talk about in Microeconomics - I don't believe in Giffen goods, or I think Giffen goods are like Santa Claus.  For those who are a little rusty on Giffen goods is the case where quantity demanded increases when prices rise, holding all else constant.

In the article, it states that beer prices rise during Oktoberfest (in Germany) and simultaneously so does quantity demanded.  That would be a Giffen good if there were no other factors at play - which clearly (to me) is the case - that being Oktoberfest.  So as I told my former student:  "This seems like a shift in demand (Oktoberfest) as opposed to a movement along a demand curve.  Normally as the article states demand is INelastic (not elastic as the author states) - which makes sense, but there are times when demand changes due to non-price (of beer) factors, which is a shift (to the right) in the demand for beer.  After Oktoberfest finishes (and demand resumes to its regular course) I would guess that the price of beer will fall and demand will also fall - reflecting the shift in demand to the left."

The difficulty here is that consumers behave as the law of demand takes place without Oktoberfest, but then radically change their behavior with regard to price during Oktoberfest, as opposed to just demanding more beer (consistent with the law of demand) during the festival.  Otherwise all shifts in demand (with supply held constant) would be Giffen goods

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