The Snobby Effect and Consumption
These concepts may sound very trivial to you, but they are economic terms.
The snob effect, introduced by John Maynard Keynes, is a concept that explains how high-income people's demand for a consumer product occurs inversely with low-income people's demand.
The equivalent of this concept, which is snop effect in English, in TDK;
In dressing, speaking, language, thinking, escaping into imitations and excesses that society considers ridiculous and contradictory.
It is clear that this is an economic and sociological phenomenon. Let's explain this with an example; X brand phone has a lower demand than normal phones because its price is high (law of demand.) On the other hand, its demand does not increase as its price decreases. Because the price is still very high compared to other phones, and those with an income below a certain income will find this phone expensive and cannot buy it, even though the price has decreased. On the other hand, as the price of the phone increases, the number of people who demand this phone increases. Because those who buy this phone act by thinking that less people will have the phone and that it will provide them with an important status.
In short, our law of supply and demand does not work here. The snob effect works.
“conspicuous consumption”; A phrase that has been used for a long time in economics jargon. Thorstein Veblen explained within the framework of this concept, the upstart rich people, who had advanced with the industrial revolution, turned to luxury consumption.
Over time, conspicuous consumption has also emerged in developing countries. In developing countries, most people who do not have enough income or even low income spend more than their income allows to prove themselves to be better off. For example, they borrow and charge the latest mobile phone.
I explained these two concepts for; income elasticity of demand….
Changes in income (up and down). It has a high impact on the quantities of goods demanded. But in what goods? For example, the decrease in the demand for bread in a family with an increasing income is related to the characteristic of the good. The family now begins to eat a more protein-based diet.
There has been an extraordinary inflation in our country in the last two years. Of course, the effect of the pandemic has this phenomenon around the world. Consumption habits are starting to change due to the decline in the incomes of individuals and families.
Let's clear up the question that comes to many people's minds. When the economy is so bad and there is so much inflation, how can young people be packed in these expensive cafes and pay 50 TL for a coffee?
The answer lies in the above two effects….
Stay well.
Economic Notes 3.