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The cheese, the rats – and why some of us are poorer than others

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Summary

In 1990, in a laboratory in College Station, Texas, six lab rats were used to test the Giffen good, a thought experiment by Robert Giffen, a Victorian economist. The rats were given quinine-flavored water and root beer, and it was demonstrated that when the price of the cheaper quinine water went up, the rats still needed something to drink, and so switched to cheaper root beer. In 2008, economists Robert Jensen, Nolan Miller and Sangui Wang used public health data and a field experiment to demonstrate that in the poorest parts of Hunan, China, rice was a Giffen good. This experiment shows that when prices go up, the poorest people are hit hardest, as they don't have the luxury of finding a cheaper alternative. Recently, the price of a cheese salad sandwich has gone up drastically in the UK, and food poverty campaigners have argued that the price of basics has risen much faster than the general rate of inflation.

Q&As

What is the Giffen good?
The Giffen good is a good that is consumed more when its price rises, because the increased cost backs consumers into a corner.

What experiment was conducted to demonstrate Giffen behaviour in lab rats?
The experiment conducted to demonstrate Giffen behaviour in lab rats was offering the rats quinine-flavoured water, which the rats disliked, and root beer, which they loved. The effective prices of these drinks were changed by adjusting the volume of drink released each time the rat pressed a lever.

How did Giffen goods teach us something important about the impact of price rises on the poorest people?
Giffen goods taught us something important about the impact of price rises on the poorest people by demonstrating that those who are already relying on the cheapest staples have nowhere to run from price rises.

What data was used to demonstrate that rice was a Giffen good in the poorest parts of Hunan, China?
The data used to demonstrate that rice was a Giffen good in the poorest parts of Hunan, China was public health data and a field experiment.

What is the impact of inflation on the poorest households?
The impact of inflation on the poorest households is that it hits them hardest, because they are more vulnerable and have less room for manoeuvre as they ponder their options in the supermarket aisle.

AI Comments

👍 This article does a great job of explaining Giffen goods in a way that is easy to understand and utilizes real-world examples.

👎 This article fails to provide a comprehensive look at the negative effects of Giffen goods on the poorest households.

AI Discussion

Me: It's about the Giffen good, which is a thought experiment about certain goods that might be consumed more when their prices rise because people don't have the luxury of buying something else. It gives an example of how this could happen in real life with a student buying a potato with cheese or tuna mayo from a kebab van. The article also talks about how Giffen goods were finally found in lab rats in 1990 and in rice in Hunan, China.

Friend: Interesting. What are the implications of the article?

Me: The main implication is that for the poorest people, inflation hits them the hardest because they don't have the luxury of finding a cheaper alternative. The article talks about how basic foodstuffs, such as cheese, have become much more expensive recently, and this is especially difficult for those who already rely on the cheapest staples. So, it's important to take into account the impact of rising prices on the most vulnerable.

Action items

Research Giffen goods and their implications for the poorest people.
Explore the data from the UK on the rising prices of basic foodstuffs.
Consider ways to support food poverty campaigners and those affected by rising prices.

Technical terms

Giffen good: A good that is consumed more when its price rises, because the increased cost backs consumers into a corner.
Inflation: A sustained increase in the general level of prices for goods and services.
Substitutions: The act of replacing one thing with another.
Headline inflation: The rate of inflation as measured by the Consumer Price Index (CPI).
Food poverty: A lack of access to affordable, nutritious food.
Bookshop: An online bookstore.
Referral fees: A commission paid to someone for referring a customer to a business.