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Lecture-67 Giffen Good - YouTube
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so let me say here just say repetition
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normal inferior let's say we are talking
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about price of good one has gone up
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substitution income these are the
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effects and overall when p1 goes up subs
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because of substitution effect x1 will
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come come down and for income also
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because of income effective it will come
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down so overall it comes down while
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inferior goods substitution effect
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quantity demanded would come down while
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income effect is up so overall there are
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two possibilities either the price of
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good one comes down and overall the
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total quantity demanded of good one
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comes down or it goes up theoretically
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it is possible what does it mean that
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what when we can this scenario that
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price is going up and the quantity
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demanded of good one is going up when do
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we get this scenario when the two things
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are important first that this good has
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to be an inferior good then only the
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substitution effect and income effect
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would work in the opposite direction
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that is definitely required what else
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not only this but income effects should
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be greater than substitution effect in
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the so first requirement is inferior
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good second income effect is larger in
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magnitude larger then
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substitution effect in
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so theoretically speaking what's
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happening the price of good one is
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increasing and if these two are true
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then the quantity demanded of good one
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is increasing such good are called
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Giffen goods defend good what it means
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is p1 goes up x1 also goes up can you
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give me an example it's very very
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difficult to find different good in real
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life why why can't we find given good in
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the real life the problem is that the
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second point typically income it's very
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very difficult to have income effect
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larger than substitution effect okay
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when can we have income effect larger
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than substitution effect when majority
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of your income is spent on this
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particular good then only it's possible
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okay so this one question sir can you
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luxury goods can be termed as different
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you know luxury goods are not Giffen
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goods sir like if Gucci is a brand and
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it rises comes down by a significant
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amount no one go to the bag with you
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it's it is at that level only because of
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its prices and I'm not certain about
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this statement then when price of these
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Goods would come down then people would
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not buy what you are saying is that
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let's say that the price of a purse
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you know these expensive purses let's
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say ten thousand rupees and if it comes
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down to nine thousand rupees then less
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number of people would buy these purses
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that's not possible no no if some purse
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is very expensive now ten lakh rupees
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and it symbolizes your status huh and
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other day it comes down to one lakh
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rupees then there is no point that the
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purse the set of people who were
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consuming that purse that good for ten
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lakh rupees to show the status will buy
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the same person
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one lakh rupees because it will become
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more common then it will not symbolize
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the restrooms to see what again there
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are a lot of assumptions that you are
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making in giving this statement because
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see at 1 lakh rupees also it will be a
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status symbol for different group of
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people and give him the income
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distribution in this world probably more
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number of people would be comfortable
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buying it at 1 lakh rupees price okay so
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probably the can not probably the
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consumption of these Goods will go up
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because price has come down maybe not
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same set of people would buy but then we
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are talking about from for the market so
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the person's income you can afford Intel
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vehicle and also see this is the another
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requirement here that income effect has
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to be larger than substitution effect
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it means significant portion of your
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income is gone in buying these items so
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that's not true that's not true okay so
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these luxury goods are not given goods
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fine okay it's clear let me give you
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just an example typically it's very very
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difficult to find Giffen Goods you know
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if you take an example of potato that I
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gave you earlier and it was it was
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talked about for very long time in
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economic discipline that during Irish
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Famine the potato was given good because
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people were using most of their income
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to buy potato because that's what they
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would consume so when the price of
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potato when job they could not even
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spare little bit of money for meat and
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other other food products so to to get
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enough calorie they had to increase the
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consumption of potato so in that case if
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this story is true then potato is Giffen
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good okay but the problem is with this
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the second requirement that income
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effect is larger than the substrate
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tuition ffs typically this is not
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fulfilled that's why we have very very
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hard time getting finding out figuring
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out different good in in an economy okay
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