Hah! A Jevons Effect[1] in a web site's bandwidth!
[1] When an increase in the efficiency with which a resource is used causes total usage to increase. https://en.wikipedia.org/wiki/Jevons_paradox
[1] When an increase in the efficiency with which a resource is used causes total usage to increase. https://en.wikipedia.org/wiki/Jevons_paradox
The case of website cost going down and demand going up seems pretty standard.
If a package of ribeye steak normally sells for $2.99 and doesn't sell well, but then its price changes to $6.99 (but nothing else changes), and demand increases, that steak is a giffen good. The ribeye steak is not conspicuous consumption (unless your definition of status is really loose and includes posting photos of your food to Instagram). What happened there is straightforward: there's an elastic demand for ribeye steak, people saw the price and assumed quality signaling. When it increased to price parity with higher end brands, people assumed quality parity as well.
Conversely, a mechanical watch is specifically optimized to be good at time keeping in the most functional and cost inefficient ways (e.g. assembled in hand in a white gold case with a hand-decorated guilloche dial and proprietary in-house movement mechanisms, etc). That is precisely conspicuous consumption, and thus it's a veblen good.
One good's demand increases because of quality signaling, the other good's demand increases due to status signaling. The point of there being two of these definitions is the nuance in why consumers would purchase luxury items. Theoretically, people don't buy at Trader Joe's just to brag to their upper class friends that they shop at Trader Joe's (this is not a good example but take away a specific brand and you get the gist).
The article states that a necessary condition is that "The goods in question must be so inferior that the income effect is greater than the substitution effect". The reason people are buying more when the price rises is not because of the income effect (which would be because they have less money since the price went up, so demand for inferior goods increases), but rather because they now have evidence/reason to believe that the good is quality.
That's not giffen according to the definition given, which includes a causal factor for the demand curve.
It is simply not true that that a good must be "inferior" to be a Giffen good (unless you adopt a special meaning of inferior, which since it's not necessary to do, I won't agree to). The classic example (thought experiment, without regard to whether it actually happened) is potatoes in poverty stricken Ireland: a poor person's diet would be mostly potatoes (inexensive Econ-Utility (compared to steak): calories, fills the belly) with some meat a few meals a week (expensive Econ-Utility: protein, iron, B vities, tasty, "not potato", even a touch Vebleny)
So, arbitrary budget example, let's say $20 at the grocery gets you $15 potatoes every day and $5 of steak 1 days a week. If the price of potatoes goes up, you need to reduce something, but you need to eat every day so you can't reduce potatoes, so you reduce your steak consumption, but now you have some extra money which you spend on even more potatoes. Price of potatoes went up, consumption of potatoes went up. <-- there is already a theoretical problem there, you could reduce steak just enough to keep potatoes equal, so let's just say you can buy a steak or not buy a steak, no half steaks, OK? just trying to make the point "what is a Giffen good", and not trying to prove whether Giffen goods exist or not.
So, potatoes are not "inferior" to steaks, both are requirements for a balanced diet; I supposed a technical econ-definition of inferior could be designed to mean something along the lines of "inferior is defined to rule out your example, aaight"
In any case, while Giffen goods probably can't exist in a market for any length of time, the concept is completely understandable as a short-term reasonable thing that occurs: I go to the store with cash intending to buy an "assemble your own" burrito with guac, the price of beans went up, I don't have the cash at hand now to get the guac, but it's not a burrito at all without the beans, so I leave out the guac... but turns out by leaving out the guac, I can get a larger size burrito: consumption of beans just went up at the same time as the price. This effect happens for sure... does it happen enough to counteract the people who would leave out the beans and keep the guac? Can the "substition of beans for guac" function always be seen seen to be continuous and differentiable? <-- perhaps not, burrito shops like to have overly expensive add-ons for 2nd order price discrimination, so the price of guac might very well be "quantized" at an absurdly high level, and does that make beans not a Giffen good? ...
my point is, the way you guys are arguing this is leaving too much out, can't be answered and wikipedia at this level of analysis is too unreliable.
Terms of art annoy me (the legal profession and philosophy are full of them, overloaded (OOP definition) on preexisting words) because IANALinguist but I could play one on TV without rehearsing, so my point is, if you want to have a narrow morphology for a word, don't recycle a word that has broad meanings, invent a new word that is precise, like econ-inferior. Then at least when a person doesn't understand what you say, they will think to themselves "maybe I should look up the definition" as opposed to actually believing you said something different than you did.
Nobody can live on potatoes alone, you'd die. Nor can anybody live on steak alone. Neither good can be said to be precisely econ-inferior to another, only econ-inferior over some delta range of prices and/or time (and assuming demand, etc). But the whole question of Giffen goods is also valid only over some delta, so as long as they are different deltas, the definitions would not be in conflict (and vice versa all the variations of that).
Not trying to argue, just trying to clarify what I came upon. Econ theory I think is sound but requires many simplifying assumptions to teach and learn, and then when we talk about whether Giffen good actually exist or not it's easy to lose track of simplifying assumptions like "long term" or "substitution".
cheers.
In practical terms (that may not fill the theoretical definition of the giffen good), spare time in certain circumstances is quite obviously a Giffen good. Once your income increases (which means the opportunity cost of your spare time increases), you are willing to work less, i.e. consume more spare time. Of course, this is not a universal rule, but I think it is obvious that for _many_ people this is the case. If it was _not_ the case, there was no way people in sweatshops work longer hours than western middle class.
https://en.wikipedia.org/wiki/Giffen_good#cite_note-4
I bet you could find it in some video game economies.
> To be a true Giffen good, the good's price must be the only thing that changes to produce a change in quantity demanded. A Giffen good should not be confused with products bought as status symbols or for conspicuous consumption (Veblen goods)
Veblen goods = Goods for which demand rises with price because they are status symbols Giffen = Goods for which demand rises with price - Veblen Goods
However there are no examples there that hold, to me this signifies that the only goods for which the law of demand does not apply are status symbols.
The idea is that the good is the lowest quality way of fulfilling some need - so people buy it because they can't afford anything else.
No, it's an inferior good (in the economic sense) in which the (negative) income effect of a price increase outweighs the success substitution effect.
What you are describing is a good that has a positive elasticity of demand with respect to income (or, technically, two different goods, because the higher price represents a different good altogether - one with a higher status symbol).
Jevons: Quantity required per use goes down, so you might expect total demand to decrease. Instead total consumption goes up.
Giffen: Price per use goes up, so you might expect total demand to decrease. Instead, total consumption goes up.
Either could increase consumption by displacing available substitutes, though that's not necessarily the case with Jevons. They are indeed different phenomena, they just have some similarities.
You know that Andreas Baader and Ulrike Meinhof were the main founders of the terrorist organization RAF (Rote Armee Fraktion (Red Army Fraction)) in Germany. RAF was also the reason that grid investigation was used in the 70th (where lots of innocent people were accused wrongfully) after a RAF terror series, after which some constitutional principles were quashed. The German word for this is "Deutscher Herbst" (German Autumn; https://en.wikipedia.org/wiki/German_Autumn).
These experiences lead (indirectly) to the rise of a completely new party (Die Grünen; The Green Party) and are (besides the experiences with the two dictatorial regimes on German ground in 20th century) one of the reason why data privacy is taken very seriously in Germany.
Thus mentioning RAF, Andreas Baader or Ulrike Meinhof to (in particular older) Germans is perhaps like mentioning Al-Kaida, 9/11, Mohammed Atta etc. to US citizens.
See: the entire popular support for efficiency mandates.
(Edit: Also, this very example -- I certainly didn't expect that a faster site would allow that many more users: my model was more "either they want to see your site, or they don't", i.e. inelastic demand.)
The (common) error is to neglect the additional uses people will put a resource to when its cost of use goes down. ("Great news! We get free water now! Wha ... hey, why are you putting in an ultra-thirsty lawn??! You don't need that!")
Also, I wouldn't call it basic supply and demand; depending on the specifics (inelasticiy of demand, mainly), total usage may not actually go up with efficiency.
Which, really, can be summed up by my favorite Yogi Berra-ism "No one goes there nowadays, it’s too crowded."
It usually does actually.
What is happening there is that you have different demand levels at different congestion levels. If you alleviate some congestion by widening the road then demand goes up.
That is only a problem if the demand without congestion is higher than what even the wider road can handle. As long as the new road can handle the higher but still finite demand you get when there is no congestion, there is no problem.
In other words, as long as you make the road wide enough for the congestion-free demand level to begin with, that doesn't happen.
- It may not be physically possible to add enough lanes to e.g. handle everyone who would ever want to commute into L.A.
- Even if that road was correctly sized, it still has to dump the traffic into the next road, through the next intersection point. If you've increased the capacity of the freeway but none of smaller road networks that the traffic transitions to, you've just moved the bottleneck, not eliminated it. And that too may be physically impossible.
In any practical situation car transportation efficiency does not scale well enough that you can avoid addressing the demand side.
That is a separate question from how stupid that is in comparison to the alternative of building higher density residential housing closer to where people work and with better mass transit.
But if people don't want to do that either, you have to pick your poison.
And there really are many cases (Los Angeles notwithstanding) where adding one lane isn't enough but adding two is and where that genuinely is the most reasonable option.
14 percent of LA county (not just city!!) is parking. http://www.citylab.com/commute/2015/12/parking-los-angeles-m...
I'm trying to find a better source, but at one point supposedly 59 percent of the central business district was car infrastructure (parking, roads, etc.) http://www.autolife.umd.umich.edu/Environment/E_Casestudy/E_...
I mean, at what point do you just build a 400 square mile skid pad with nothing else there just to "alleviate traffic"? Hell, that's practically what Orange County is already.
The rest of the day they don't actually park anywhere, they just stay on the road operating by carry one or two passengers at a time instead of eight or nine. Or half them stay on the road operating and the other half go off and park in some huge lot out where land is cheaper until demand picks up again.
Then instead of 3.3 spaces per car you can have <1, and most of them can be in low land cost areas.
It's actually kind of like dynamically allocated mass transit.
Final point, you can certainly build out less parking spaces, but pre-existing spaces won't go away without redevelopment.
This might be an extreme example that won't work for other reasons, but generally adding more lanes will increase demand, so you still won't have enough lanes.
http://www.scottaaronson.com/blog/?p=418
For example:
> Why are even some affluent parts of the world running out of fresh water? Because if they weren’t, they’d keep watering their lawns until they were.
Jevons Paradox is only tangentially related. It is based on the observation that sometimes using a resource more efficiently results in higher overall consumption. For example, say 40 kg of lithium is needed for the batteries of an electric car. At some point, 4000 tonnes are produced annually, enough for 100,000 electric cars per year. Now a new battery comes on the market that needs only 20 kg of lithium. Should the lithium producers be worried that the lithium demand will drop, since only 2000 t will be needed for the 100,000 electric cars? Maybe. But if Jevons Paradox comes into play, the annual production of electric cars might triple as their cost drops due to lower lithium usage, and the new demand will then settle at 6000 tpa. So, paradoxically, reducing the amount of lithium in each battery could be good news for lithium producers.
Whether or not Jevons Paradox occurs depends on the elasticity of supply-demand curves, in this case the curves for lithium and for electric cars.
* Engines get more efficient (fewer litres per kilometre traveled). Does the total amount of petrol consumed go down or up?
* Flushes get more efficient (less water / successful flush). Does the total amount of water consumed go down or up?
Both of these have a more efficient use of a consumable quantity. Often, however, more efficient engines lead to more traveling and larger vehicles whereas more efficient flushing leads to reduced total water consumption usually.
The fact that gains from efficiency can be outraced by the induced demand can be seemingly paradoxical. And "seemingly paradoxical" is the only thing that makes anything labelled "Paradox" interesting.
The paradox is that they tried to reduce demand to reduce consumption, but accidentally reduced price, so increased consumption.
The bit you're missing is that duality, that an action intended to reduce demand could reduce price instead. Applying rules of supply and demand happens as a step after categorising the action, that the action was miscategorised led to a misprediction.
This is the basic reason for naming anything after all a car is just a fossil fuel internal combustion kinetic comvertion wheeled people and goods pilotable transportation platform but saying a car is just easier :)
There's a clear and identifiable trend or pattern resultant of the general model, there's no reason not to assign it a shorthand way of being referred to in discussion or study.
It gets a special term because it was coined in 1865, before most of modern economics was codified and this was a cutting edge finding. You may as well ask why Newton's laws get a special term, because they're all just obvious basic equations in physics that high school students are taught.
I remember turning an algorithm upside down, making it so fast, it went from "number crunching wonder" to "users saw nothing, this software is meh".