Bandwagon, Snob And Veblen Effects In The[1]

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Published on October 15, 2008

Author: maddy3

Source: slideshare.net

Bandwagon,Snob and Veblen Effects In The Theory of Consumers’ Demand

Objective Incorporating the following phenomenon in the theory of consumers’ demand - Desire of consumers to be in style - Attempts to obtain exclusivity - Conspicuous consumption

Incorporating the following phenomenon in the theory of consumers’ demand

- Desire of consumers to be in style

- Attempts to obtain exclusivity

- Conspicuous consumption

Demand Theory Reconsidered Market demand curve may not be the lateral summation of individual demand curves in some cases Interpersonal aspects of utility and demand Impact of Non functional utilities

Market demand curve may not be the lateral summation of individual demand curves in some cases

Interpersonal aspects of utility and demand

Impact of Non functional utilities

Assumptions Static Analysis - A static situation is one in which the order of events has no significance Income and expenditure patterns repeat themselves in every period

Static Analysis

- A static situation is one in which the order of

events has no significance

Income and expenditure patterns repeat themselves in every period

Demand Classified Demand Functional Non Functional External effects on utility Speculative Irrational

Bandwagon Effect Extent to which demand for a commodity is increased due to the fact that others are also consuming the same commodity at a given price Be in sync with the times Eg: Ronaldo’s hairstyle during the football world cup

Extent to which demand for a commodity is increased due to the fact that others are also consuming the same commodity at a given price

Be in sync with the times

Eg: Ronaldo’s hairstyle during the football world cup

Conceptual Experiment Assume that an individual’s demand is a function of the total market demand at given prices Obtain individual demand data from consumers’ (given market demand at fixed price) Repeat the above process using the preceding survey data as a base

Assume that an individual’s demand is a function of the total market demand at given prices

Obtain individual demand data from consumers’ (given market demand at fixed price)

Repeat the above process using the preceding survey data as a base

Implications Diminishing marginal external consumption effect - Demand does not increase indefinitely - Income constraint Concept of equilibrium demand curve - Marginal external consumption effect for all consumers’, but one,at all alternate prices is equal to zero

Diminishing marginal external consumption effect

- Demand does not increase indefinitely

- Income constraint

Concept of equilibrium demand curve

- Marginal external consumption effect for all consumers’, but one,at all alternate prices is equal to zero

The Snob Effect Extent to which the demand for a consumers’ good is decreased owing to the fact that others are consuming the same commodity Reverse of Bandwagon effect

Extent to which the demand for a consumers’ good is decreased owing to the fact that others are consuming the same commodity

Reverse of Bandwagon effect

Veblen Effect Extent to which the demand for a consumers’ good is increased because it bears a higher than a lower price Veblen effect is a function of price Real price vs. Conspicuous price - Real Price is paid in monetary terms - Conspicuous price is what other people think consumer paid for the commodity

Extent to which the demand for a consumers’ good is increased because it bears a higher than a lower price

Veblen effect is a function of price

Real price vs. Conspicuous price

- Real Price is paid in monetary terms

- Conspicuous price is what other people think

consumer paid for the commodity

Thank You Rohan Warey Section A - 45

Rohan Warey

Section A - 45

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