What is Quasi-rent and Giffen good?

Q. What is Quasi-rent (Nov’11)?

Quasi-rent: Quasi-rent is like economic rent, but usually larger, because it is the excess of return over short run opportunity cost, which does not include the fixed cost of replacing or duplicating fixed assets such as a piece of capital or an invention. Thus, infra-marginal rent.

For example at the time of creation of Bangladesh, the demand for houses increased owning to increase in population. But the supply could not be increased because of the sacristy of building materials. For the time being, their supply was much limited as that of land. Rent rose. This abnormal increase in the return on capital invested in building is nothing but Quasi-rent.

Q. Define Giffen good (May’11, Dec'13).

Giffen good: In economics and consumer theory, a Giffen good is one which people paradoxically consume more of as the price rises, violating the law of demand. In normal situations, as the price of a good rises, the substitution effect causes consumers to purchase less of it and more of substitute goods. In the Giffen good situation, the income effect dominates, leading people to buy more of the good, even as its price rises. Evidence for the existence of Giffen goods is limited, but microeconomic mathematical models explain how such a thing could exist. Giffen goods are named after Scottish economist Sir Robert Giffen, to whom Alfred Marshall attributed this idea in his book Principles of Economics. Giffen first proposed the paradox from his observations of the purchasing habits of the Victorian era poor.

An example at this point, the consumer’s entire budget is taken up by the giffen good, so any price increase now will result in a decrease of the amount of good the consumer is able to buy.  Thus, we will have our typical downward sloping demand curve.