Veblen Good
A Veblen good is a good for which demand increases as the price increases due to its exclusive nature and appeal as a status symbol. This runs counter to the prevailing circumstance of demand falling as prices rise. Thus, a Veblen good has an upward-sloping demand curve rather than the typical downward-sloping curve.A Veblen good is generally a high-quality, coveted product. This stands in contrast to a Giffen good, which also has an upward-sloping curve but is a non-luxury product with no easily available substitutes.
Definition: Veblen goods are those goods for which demand increases as the price increases. This phenomenon occurs due to the unique nature and status symbol appeal of these goods. Unlike the typical scenario where demand decreases as prices rise, the demand curve for Veblen goods slopes upwards.
Origin: The concept of Veblen goods was introduced by American economist Thorstein Veblen in 1899. He first described this phenomenon in his book The Theory of the Leisure Class, noting that certain goods become more attractive as their prices rise because they symbolize wealth and status.
Categories and Characteristics: Veblen goods are typically high-quality, desirable luxury items such as branded watches, luxury cars, and high-end fashion. Key characteristics include:
- Uniqueness: These goods hold a unique position in the market due to their scarcity and distinctive design.
- Status Symbol: Ownership of these goods is often seen as a marker of high social status.
- High Price: The high price itself is part of the appeal, symbolizing the buyer's wealth and taste.
Comparison with Similar Concepts: Veblen goods are contrasted with Giffen goods. Giffen goods also have an upward-sloping demand curve, but they are typically non-luxury items with no easy substitutes. For example, certain staple foods may see increased demand as prices rise because low-income households might cut back on more expensive foods and buy more of the Giffen goods.
Specific Cases:
- Case 1: A high-end watch brand increases the price of its watches from $50,000 to $100,000, attracting more affluent consumers. These consumers view the high-priced watch not just as a timepiece but as a symbol of status and identity.
- Case 2: A luxury car brand releases a limited edition model priced at $1 million. Despite the high price, the car's scarcity and brand value attract more wealthy buyers, leading to a situation where demand exceeds supply.
Common Questions:
- Why does demand for Veblen goods increase with price? The high price itself is part of the appeal, symbolizing the buyer's wealth and status.
- What is the difference between Veblen goods and Giffen goods? Veblen goods are luxury items with an upward-sloping demand curve due to their status symbol appeal, while Giffen goods are basic necessities with an upward-sloping demand curve due to the lack of substitutes.
