Bandwagon, Snob And Veblen Effects In The[1]
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Transcript of Bandwagon, Snob And Veblen Effects In The[1]
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Bandwagon,Snob and Veblen Effects In The
Theory of Consumers’ Demand
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Objective
• Incorporating the following phenomenon in the theory of consumers’ demand
- Desire of consumers to be in style
- Attempts to obtain exclusivity
- Conspicuous consumption
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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
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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
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Demand Classified
Demand
Functional Non Functional
External effects on utility Speculative Irrational
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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
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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
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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
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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
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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
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Thank You
• Rohan Warey
• Section A - 45