Veblen good

Examples of Veblen good in the following topics:

• The Law of Demand

  • If the income of the consumer, prices of the related goods, and preferences of the consumer remain unchanged, then the change in quantity of good demanded by the consumer will be negatively correlated to the change in the price of the good or service.
  • Though in general terms and specific to normal goods, demand will exhibit a downward slope, there are exceptions: Giffen goods and Veblen goods
  • A Giffen good describes an extreme case for an inferior good.
  • example of a Giffen good, though a popular albeit historically inaccurate example is the purchase of potatoes (an inferior good) as prices continued to increase during the Irish potato famine.
  • These goods are known as a Veblen goods.

• Market Demand

  • The demand schedule represents the amount of some good that a buyer is willing and able to purchase at various prices.
  • In general, this means that the demand curve is downward-sloping, which means that as the price of a good decreases, consumers will buy more of that good.
  • A market demand schedule is a table that lists the quantity of a good all consumers in a market will buy at every different price.
  • However, special cases exist where the preference for the good or service may be perverse.
  • Two different hypothetical types of goods with upward-sloping demand curves are Giffen goods (an inferior but staple good) and Veblen goods (goods characterized as being more desirable the higher the price; luxury or status items).

• Willingness to Pay and the Demand Curve

  • In general as the price of a good increases, the quantity demanded of that good decreases.
  • Veblen goods are expensive luxury products, such as designer handbags and high-end cars.
  • Giffen goods are very rare and are defined by three characteristics:
  • It is an inferior good, or a good for which demand decreases as consumer income rises,
  • In this instance, bread is a giffen good.

• Elasticity of Demand

  • Only goods which do not conform to the law of demand, such as a Veblen good and a Giffen good, have a positive PED.
  • The PED of a good can also be used to predict the incidence (or "burden") of a tax on that good.
  • A number of factors can thus affect the elasticity of demand for a good:
  • Breadth of definition of a good: The broader the definition of a good (or service), the lower the elasticity.
  • Identify the key factors that determine the elasticity of demand for a good

• The Demand Curve

  • Demand is the willingness and ability of a consumer to purchase a good under the prevailing circumstances.
  • The demand curve usually slopes downwards from left to right; that is, it has a negative association (two theoretical exceptions, Veblen good and Giffen good).
  • The constant "b" is the slope of the demand curve and shows how the price of the good affects the quantity demanded.
  • Non-price determinants of demand are those things that cause demand to change even if prices remain the same—in other words, changes that might cause a consumer to buy more or less of a good even if the good's price remained unchanged.
  • However, demand is the willingness and ability of a consumer to purchase a good under the prevailing circumstances.

• Defining Price Elasticity of Demand

  • The price elasticity of demand (PED) measures the change in demand for a good in response to a change in price.
  • The law of demand states that there is an inverse relationship between price and demand for a good.
  • Only goods that do not conform to the law of demand, such as Veblen and Giffen goods, have a positive PED.
  • The demand for a good is said to be elastic (or relatively elastic) when its PED is greater than one.
  • This means that demand for a good does not change in response to price .

• Forces in Consumerism

  • The modern understanding of consumerism refers to an emphasis on the consumption of goods, often with a connotation of excess.
  • The term is often associated with criticisms of consumption starting with Thorstein Veblen.
  • This more modern conceptualization is based on the writings of sociologist and economist Thorstein Veblen who lived at the turn of the 20th century.
  • Veblen's scathing proposal was that unnecessary consumption is a form of status display .
  • Conspicuous consumption is when goods are consumed to enhance one's social status.

• Psychology of Purchasing

  • Red is associated with energy, and creates the feeling of urgency (think clearance sale signs) while black is associated with sleek and powerful (think luxury goods).
  • Consumerism is a social and economic order that encourages the purchase of goods and services in ever-greater amounts.
  • The term is often associated with criticisms of consumption starting with Thorstein Veblen.
  • Veblen's subject of examination, the newly emergent middle class arising at the turn of the twentieth century, comes to full fruition by the end of the twentieth century through the process of globalization.
  • The term "consumerism" was first used in 1915 to refer to "advocacy of the rights and interests of consumers" (Oxford English Dictionary) but in this article the term "consumerism" refers to the sense first used in 1960, "emphasis on or preoccupation with the acquisition of consumer goods" (Oxford English Dictionary).

• Economic Way of Thinking

  • When Pi = price of good i, B = Budget, Qi = Quantity of good i
  • The producers (sellers) of a good should continue to produced and sell more of a good so long as the P > MC.
  • Thorstein Veblen (1857-1929) is regarded as the founder of the Institutionalist school of economics.
  • Veblen "develops the idea that institutions are inhibitory and backward looking, while science and technology are themselves dynamic and oriented toward change" [Tilman, A Veblen Treasury, page xxiii].
  • Tilman finds five ideas in Veblen that are representative of his contribution:

• References

  • Worldly Goods: A New History of the Renaissance, Doubleday: New York, 1996.