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The Giffen paradox is an anomalous event where as a result of rising prices, demand increases, and conversely, when the price of a good or service falls, demand also tends to fall.
This is contrary to modern economic theory which states that price is directly proportional to demand where when demand increases, the price will become more expensive, as well as in the supply aspect when this aspect increases it will make the price cheaper.
Well, this Giffen paradox happened several decades ago in Europe. At that time most of the people there, both poor, middle class, and rich, had a staple food in the form of bread made from wheat. Because bread is a basic need, it absolutely must be fulfilled in any way and condition.
At one time there was a hostile climate for which the cause was unknown. This makes the wheat crop less productive, so the price of bread in the market becomes more expensive than the normal situation in general.
As a result, people are worried about the availability of their staple food, so they are willing to allocate more money to buy bread. They even try to buy more for fear that in the next few days or weeks the availability of bread will become increasingly scarce.
Then the Giffen Paradox emerged where the price of expensive bread products made the demand increase. Yep, all of this is closely related to market psychology, where at this time people are faced with the choice to buy bread at high prices or starve.
Of course, as normal human beings, we will be willing to do whatever it takes to be able to eat and get carbohydrate nutrition to fulfill the energy source in our bodies.
The Giffen paradox is hard to avoid in such situations and conditions. So there is a need for special handling to re-align market laws, especially by the government so that everything returns to normal and there is no Giffen paradox.
This is contrary to modern economic theory which states that price is directly proportional to demand where when demand increases, the price will become more expensive, as well as in the supply aspect when this aspect increases it will make the price cheaper.
Well, this Giffen paradox happened several decades ago in Europe. At that time most of the people there, both poor, middle class, and rich, had a staple food in the form of bread made from wheat. Because bread is a basic need, it absolutely must be fulfilled in any way and condition.
At one time there was a hostile climate for which the cause was unknown. This makes the wheat crop less productive, so the price of bread in the market becomes more expensive than the normal situation in general.
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| Image by Masashi Wakui from Pixabay |
As a result, people are worried about the availability of their staple food, so they are willing to allocate more money to buy bread. They even try to buy more for fear that in the next few days or weeks the availability of bread will become increasingly scarce.
Then the Giffen Paradox emerged where the price of expensive bread products made the demand increase. Yep, all of this is closely related to market psychology, where at this time people are faced with the choice to buy bread at high prices or starve.
Of course, as normal human beings, we will be willing to do whatever it takes to be able to eat and get carbohydrate nutrition to fulfill the energy source in our bodies.
The Giffen paradox is hard to avoid in such situations and conditions. So there is a need for special handling to re-align market laws, especially by the government so that everything returns to normal and there is no Giffen paradox.
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