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 Public Goods?3 Views
And finance Allah shmoop What are public goods order Well
the public has a lot of things mostly opinions but
also goods like public goods or goods or services that
all people of society have access to which are created
for public benefit rather than profit If you want to
get all technical about it well public goods are non
excludable and non rivalrous Well non exclude ability means that
nobody is excluded Even if someone didn't cough up any
cash to receive the benefits of that good whether you
paid your taxes or not you can go to the
park into the library Didn't pay Doesn't matter We'LL Non
rival risk means that more and more people can consume
the good without additional costs and without preventing others from
consuming the good There Yeah just because your breathing the
air While that doesn't stop your neighbor from doing so
you can take your dog on a walk in the
park which won't stop others from indulging in the parks
Um you know Park nous well to contrast what's excludable
and rivalrous I e The opposite of a public good
Well a private good like How about roller coasters A
roller coaster is rival risk since there can be only
so many people on the roller coaster at once if
the theme park is conforming Teo you know safety regulations
Anyway The roller coaster is also excludable because well you
have to pay to get into the theme park to
ride the roller coaster because well theme parks care about
profit Roller coasters are definitely private goods Will public good
sound pretty great right There's something you topic about them
Everyone can use them at the same time and without
paying a cent But they have their fair share of
problems just like private goods The biggest issue is the
free rider problem which is well when people take advantage
of public goods by not paying their fair share of
the good For instance if you've ever watched a firework
show from afar for free when it cost money to
get closer well then you're a free rider You benefited
from the fireworks show but you didn't pay for it
and you couldn't be excluded from watch Sing it since
it's like you know in the sky well when people
get the benefits without having to pay for the costs
of that benefit Many goods and services that people would
otherwise be willing to pay for will disappear or never
make it to the market at all Take our fireworks
Example If everybody decided to free ride and watch the
fireworks show from a bit farther away for free and
nobody bought tickets to that firework show well then they're
probably not going to be one next year The moral
of the story while too much free riding kills firework
shows and you know other goods which is why exclude
ability and property lines are so important at least important
to respect A theme park wouldn't last long if there
wasn't a wall surrounding it and you could just walk
in and ride the roller coasters for free The free
rider problem goes hand in hand with positive externalities like
positive externalities air benefits somebody gets without paying for them
and without necessarily even asking for them For instance if
you love firework shows and happen to have a great
view of firework show from your backyard while you just
got a positive externality the fireworks show producer can't charge
you for viewing the show from your own backyard Maybe
there would be more firework shows if they could make
them mohr excludable reducing the positive vibes or positive externalities
that they're given out for free right So what makes
our public goods like parks and libraries work well The
free rider problem is avoided because those goods are typically
paid for by the government which means it's funded by
taxes And who pays taxes You D'Oh The public does
anyway the people who work which means free riding isn't
a problem because most people are already paying for the
parks and libraries Oh whether they like it or not
People who aren't paying taxes are free riding when they
hang out in the park in the library But because
the numbers of free riders air so few well it
doesn't really affect the funding of those goods And at
least as a present it's not problematic enough to make
libraries and parks shut down But we'LL see what the
future holds here What else are you free riding If
you're not paying your fair share of taxes while things
that everyone in the country benefits from like national defense
it's an access to clean air and water Public radio
Yeah that's a freebie to All right Well free riding
That isn't Okay Well the free riding Nicolas Cage does 00:04:10.095 --> [endTime] in Ghost Rider Yeah So not Okay Hi
Up Next
What are Superior v. Inferior Goods? Superior goods are purchased more as income rises and inferior goods are purchased more as income decreases. T...