In the words of Adam Smith, “Man naturally desires, not only to be loved, but to be lovely.” Maybe you feel lovely by volunteering at the dog shelter, or by providing for your family, or by owning a Tesla, or by having the “GUCCI” on your butt (sweatpants, not a tattoo). Hmm...the latter two are pretty conspicuous.
Thorstein Veblen thought so, anyway. He zeroed in on the Tesla and Gucci types of feeling lovely: buying expensive things for status reasons, which he termed as “conspicuous consumption.” Out of this came the idea of a Veblen good: a good whose demand increases as the result of the price increasing, because the price increase makes it more desirable as a status symbol.
For many goods, this is not the case. When prices go up on your coffee, bananas, and gas, you will probably buy less of them...maybe find substitutes for the food-stuffs, and stop taking joy rides, reducing your gas consumption, until prices go down. But if that fancy Rolex increases in price, or that hairless designer cat costs you an arm and a leg (it only cost an arm last year), then the demand for those things goes up. The more expensive (and thus scarce) a luxury good is, the more it’s demanded by the people who can afford it.
A less conventional type of Veblen good? Some colleges. An elite college lowering its tuition might be a sigh of relief to current students, but to the outside world, it may have a cheapening effect. Conversely, if an elite college raised its tuition, people often assume it must be worth the high price tag, making it a school worth going broke to attend.
Related or Semi-related Video
Econ: What are Superior v. Inferior Good...4 Views
And finance Allah shmoop What are superior and inferior goods
All right Well in casual conversation you might say that
Reese is is a superior candy bar Teo the Baby
Ruth Or that broccoli is an inferior vegetable Teo pretty
much every other one in economic superior and inferior goods
aren't union yang Superior goods also known as luxury goods
are actually a subtype of normal goods Well normal goods
or goods whose demand goes up when incomes go up
Yeah like normal normal goods in L A include air
conditioners and kombucha and designer clothes Normal goods in New
York City include flannel button ups noise cancelling headphones and
of course pizza The more money people make the more
they'LL be spending on these goods if they're getting technical
while normal goods have a positive income Elasticity of demand
elasticity measures how sensitive we are two goods when they
change in price or when our buying power changes The
more elastic something is the more sensitive we are to
it The more any elastic something is the less sensitive
we are to it Well normal goods have a positive
elasticity of demand meaning will want more normal goods as
our buying power rises Superior goods or luxury goods are
a type of normal Good superior goods like normal goods
have an incoming elasticity of demand that's greater than zero
So what makes a superior good a superior good Well
a superior good has an income elasticity of demand That's
not on ly greater than zero It's greater than one
Superior goods are just extreme versions of normal goods The
increase in demand for superior goods is greater than for
normal goods given a certain percent increase in income When
people are rolling in dough they have more money to
play with making their demand more any elastic They have
so much money that the basics are covered so they
can spend a higher proportion of their income on luxurious
things Superior goods are things like fancy TVs fancy cars
fancy clothes basically anything fancy Okay so we have the
normal goods Remember which have a positive income elasticity of
demand and superior goods also known as luxury goods which
are extreme normal goods with an incoming last the city
over one We also have inferior goods which is the
gin in the yang of normal goods while normal goods
have a positive income Elasticity of demand in cheerier goods
have a negative income Elasticity of demand will What is
all this means means inferior goods are things people want
less of as their income arises as people's buying power
increases well they'LL usually start substituting inferior goods for normal
ones As you start making more money while you'LL probably
swap your inferior McDonald's coffee for Starbucks a normal good
you might switch from riding the boss to driving a
car Another substitution of an inferior good for a normal
good The more money you make the last you'LL demand
inferior goods As you climb the corporate ladder you'LL forget
inferior goods all together like they were never a part
of your life But don't worry There's a horseshoe theory
for inferior and superior goods For instance if you find
yourself in your corner office overlooking the city missing the
good old days when you had duct tape shoes and
inferior good very inferior Good There's a superior good for
that right Like you Khun by this superstar taped sneaker
a superior good at five hundred thirty dollars and then
reminisce about well the old inferior good days Yeah there's
a luxury market for everything nowadays Yeah you've seen it
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