Giffen goods are named after Scottish economist Sir Robert Giffen, a Scottish Statistician and Economist. Giffen first proposed the goods and the from his observations of the purchasing habits of the Victorian era poor. The Victorian era saw widespread poverty, largely fuelled by industrialization impacting a significant portion of the population. The poor, including the working class and the underclass, lived in unclean conditions, often facing inadequate housing, sanitation, and nutrition, and many relied on charity or workhouses which were  institutions in Britain and Ireland, primarily in the 17th-19th centuries, where those unable to support themselves financially were offered accommodation and employment in exchange for their labour.

Giffen goods are low-priced products of household which are necessary for our daily life, the demand for these goods rises along with the price rise. These products are necessary to fulfil the need for food, and they have only a few substitutes. Examples are bread, wheat, milk, eggs,  rice etc. The thought of Giffen goods undermines the elementary law of demand. The law of demand is a fundamental principle of economics that states that at a higher price, consumers will demand a lower quantity of a good. One fact remains that consumers use economic goods to satisfy their most urgent needs first.

Giffen goods are products people consider essential to their well-being, so as prices for them go up, the demand also goes up. I give here the example of cigarettes and tobacco products which characterises the Giffen’ paradox (contradiction). Cigarette prices often rise due to increased production costs, including tobacco leaf prices, especially GST. Demand can remain relatively high despite price increases due to addiction, certain socioeconomic groups being less price-sensitive.

Giffen’s paradox refers to the unexpected situation where the demand for a good increase as its price rises, challenging the law of demand. This typically occurs with inferior goods, meaning goods that consumers buy less of when their income increases. For example, when both husband and wife earn well, they don’t depend on home cooked meal, instead they  opt going out and eating. Generally, as the price of a good rises, consumers buy less of it due to reduced purchasing power and the availability of substitutes. 

The poor people who cannot afford due to their negative income effect is so strong that it overcomes the positive substitution effect as switching to cheaper alternatives. This leads to consumers buying more of the good even though its price has increased.  Example is medicines. It could potentially be considered Giffen goods, especially in critical situations they are essential for survival. Some medicines don’t have cheaper substitutes and are required for survival. Though their prices rise, the demand also rises because they are required for survival.

The Giffen paradox was first observed and described in the 19th century during the Irish famine. Historically Irish people did consume large portion of potatoes, making them a staple in their diet, especially in rural areas. Its cause was a fungal diesis caused to the potato crops, that led to huge losses in agriculture and the death of many people due to infection. This was the first time that a trend defying the previous laws of economics was noticed. One of the consequences of this event was a sharp increase in the price of bread, but it did not reduce spending on it. People gave up other foods to be able to afford expensive flour products.

Conclusion: Giffen’s paradox refers to the possibility that standard competitive demand, with nominal wealth held constant, can be upward sloping, violating the law of demand.

The butterfly effect in economics refers to the compounding effect of small changes in surrounding. The changes are so small that it is almost impossible to make accurate predictions for the future or to identify the precise cause of the reflective change. The butterfly effect causes sudden declines. But the changes continually occur during long period of stability.

One example of butterfly effect is Alexander Fleming accidentally created a Mould juice. Instead of throwing it out, he experimented with it which created Penicillin. In 1928, scientist, Alexander Fleming, discovered mould (fungi) growing in an unused petri dish. He noticed dying bacteria near the mould, on closer examination Fleming chose not to throw it out. Later, on further investigation, Fleming identified the mould as part of the Penicillium genus, which is effective against pathogens responsible for scarlet fever, pneumonia, and more. He named his discovery as Penicillin. Alexander Fleming could have chosen to throw the mould petri dish out, but his choice to instead investigate further created a butterfly effect that impacted the World.

The butterfly effect suggests that while a small action like choosing to use bicycles may not have a linear effect on carbon emission, but in longer run, that could still alter trajectory of climate change in a big way. Bicycles are widely used for transportation in cities and villages; bicycles have tiny manufacturing footprints compared to other automobiles.  Riding a bicycle can improve your mental and physical health and wellbeing. Riding a bicycle is great exercise and increases cardiovascular fitness. And maintaining a bicycle is easier.

I feel this historical example is most profound to explain butterfly effect. It’s about Mohammed Ali Jinnah. His paternal grandfather was Premjibhai Meghji Thakkar. He was a Hindu Lohana from Paneli village in Gondal State in Kathiawar, Gujarat, who converted to Islam for the sake of his occupation. Premjibhai Thakkar entered the trading of fish within the coastal town of Veraval. His business, however, clashed with the strong vegetarian moral ethics of the Lohanas and as a result he was ostracised from the community. He made enough money in this trade and attempted to rejoin the community. He also discontinued his fish business. However, the narrowminded Lohana leaders, did not accept his request. Thinks about the course of history, if they had no inflated egos and had welcomed him back. We would have united India i.e Present India, Pakistan, and Bangladesh. Mohammed Ali Jinnah was fundamentally secular. He primarily drew on the liberal language of rights, interests, and representations and was extremely uncomfortable with M.K. Gandhi’s bringing of religious values to and support of religious causes in the public sphere. Jinnah’s backing of a political identity in the name of Islam indicates a continuation of his overall belief in the secularization of religion. Often, I feel Jinnah is misunderstood, and in his later political life he was pushed into separating India-Pakistan by Nehru & Gandhi.  If Jinnah’s grandfather would have been allowed to come back to his Lohana Gujrathi caste and religion, Jinnah would have remained a Hindu, and partition of India – Pakistan wouldn’t have occurred. The history shows that the creation of a new country was a “Butterfly Effect” of the stubborn attitude of the Hindu priests.  

In 2007, when bankruptcy was inevitable, most financial and banking entities did not fully realize its impact, despite many companies going bankrupt before Lehman Brothers due to the subprime mortgage crisis. If the company didn’t fall earlier with all the slipups it had been taking, it was because it still held $63 billion in assets before the bankruptcy. Hence, when it finally collapsed, the New York Stock Exchange crashed, recording the worst single day drop in history. The crashing effect on NY Stock Exchange which destabilized the US financial markets, the bankruptcy of Lehman Brothers had a butterfly effect on the rest of the world. Consequently, the global economy experienced a violent recession in the markets that exposed financial cacophony in the following months. The financial turmoil caused serious dysfunction in financial and capital markets. It gave a severe blow to the world economy, which fell into a global recession.

In conclusion, the butterfly effect rests on the perception that the world is deeply interconnected, such that one small occurrence can influence a much larger complex system. The effect is named after a story for chaos theory. Chaos theory is taught in mathematics; it describes the qualities of the point at which stability moves to instability or order moves to disorder.  Butterfly effect evokes the idea that a small butterfly flapping its wings could, hypothetically, cause a hurricane.