Single Peakedness and Giffen Demand
I provide a simple example of a single peaked utility function that generates a Giffen demand. The utility function is smooth, non piecewise defined, strictly concave but not globally increasing. A full characterization of the parameter conditions under which the Giffen demand arises is provided. In...
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| Format: | text |
| Language: | English |
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Institutional Knowledge at Singapore Management University
2012
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| Online Access: | https://ink.library.smu.edu.sg/soe_research/1324 https://ink.library.smu.edu.sg/context/soe_research/article/2323/viewcontent/Giffeng_refv3.pdf |
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| Institution: | Singapore Management University |
| Language: | English |
| Summary: | I provide a simple example of a single peaked utility function that generates a Giffen demand. The utility function is smooth, non piecewise defined, strictly concave but not globally increasing. A full characterization of the parameter conditions under which the Giffen demand arises is provided. In addition the properties of the demand function are studied: I find that the inferior commodity with a Giffen demand must be cheaper relatively to a substitute and that Giffen demand arises at relatively low levels of income. However it is not required that the share of income spent on that commodity be large. |
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