Wednesday, September 28, 2005

A Giffen Good At Last

Economists search high and low for Giffen goods because it is an interesting special case: a good for which an increase in own price leads to an increase in demand. That is, an upward sloping demand curve. Attempts have been made to find a Giffen good: supposedly potatoes in Ireland at some point in the 19th century qualified, but the evidence is sketchy. Via Tyler Cowen, a Giffen good at last!
One sex worker...explained why she no longer offered her favorite clients free sex or cheaper rates: "They pretend to be flattered, but they never come back!...There was one client I had who was so sexy, a tai-chi practitioner, and really fun to ****. Since good sex is a rare thing, I told him I'd see him for $20 (my normal rate is $250). Another guy, he was so sexy, I told him "**** for free." Both of them freaked out and never returned...They don't believe they can have no-strings-attached sex, which is why they pay. They'd rather pay than get it for free."
As prices decrease, demand decreases. Hence, a downward sloping demand curve and a Giffen good!


Anonymous Anonymous said...

I could be wrong because I'm definitely not an expert, but even though the price of the service goes down, the clients associate another cost with the event--a strings-attached sexual encounter. In their mind, the cost of having string attached + the cost of the discounted sexual service is greater than the cost of the original service. At least, in the mind of the clients. To put it in completely quantitative terms, the services were only $20, but the cost of sex with strings attached, in their mind, may be far greater, like $1,000. So, since the original service price of $250 is less than the price of the service and the relationship ($1,020), the price would be increasing and demand decreasing, so it would not be a giffen good.

Then again, I don't know if the arbitrary price of not having strings attached would even impact the original analysis. I'm just now learning about this stuff. Cheers.

12:27 AM  

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