Giffen Goods : A Common Phenomenon in Macro Economy & Explanation of Economic Crisis From A Microeconomic View

The current study points out that the derivation of the aggregate demand curve based on theory of consumer behavior has a fundamental flaw, from which the Giffen product has to be inferior good and has been always regarded as an exception of law of demand is therefore not convincing. The current paper provides a comprehensive and deliberate proof of the aggregated demand curve, which is a downward sloping curve to the left. We argue that Giffen goods can be applied to any product when the supply of the product falls short of demand. The current study proposed a new theory to prove the common existence of Giffen goods under the microeconomic framework, which can further explain the reason of a micro Giffen phenomenon triggers a more general Giffen phenomenon in the macroeconomic. Therefore, we have paved a way of how to explain the cause of financial/economic crisis from a microeconomic prospective. Furthermore, the proposed theory provides a theoretical backup for the use of “visible hands” from the central governments, as well as some breakthrough measures and ideas to tickle the existing and potential future financial/economic crises