Snob, Bandwagon and Veblen Effects - Essay Example

As such, as the price of a commodity increases, the number of units demanded by the customer's decreases. The resultant curve is downward sloping, indicating that the demand per unit decreases with the increase in the price of the commodity.

They behave abnormally and in contradiction with the law of demand. According to these effects, the demand for commodities increases with a corresponding price increase.

The snob effect in economics is a phenomenon defining a situation whereby the demand for a particular commodity by people earning high incomes is inversely proportional to the demand for the same good to people earning low incomes in a society. The snob effect contradicts the law of the downward sloping demand curve in the long run although in the short run it obeys the law of demand and reveals a downward slope (Leibenstein 1950, p. 200). The curve representing the snob effect has a positively sloping curve indicating that as the price of commodities increases, the demand for selected commodities increases. This results from the desire by individuals to own unusual, unique, or expensive goods that defines their levels of income. Therefore, as these commodities become more expensive, their demand increases. The rich people know that the poor people cannot afford the very expensive commodities (Leibenstein 1950, p. 201). At the same time, as the income levels of the poor people increases, they can afford some of the expensive commodities. As such, the rich will tend to change their purchasing patterns, opting to purchase higher-priced goods that the poor people cannot afford.  The main characteristic of such commodities is that they have high economic value but have a low practical value. According to the snob effect, commodities that are hard to find and have high price tags have higher snob value. Therefore, the snob value increases with the increase in the price of a commodity. Examples of such commodities include rare works of art and paintings, designer clothing, and clothing. The importance of this effect in proving that the law of the downward sloping effect is wrong is that the demand for commodities increases with the increase in the level of income of the people. Therefore, as people’s levels of income increase, so do their tastes. They go for commodities that distinguish them from the low-earning people in society.   

The diagram shows a decrease in the quantity of the commodity demanded with a decrease in price.

The bandwagon effect also portrays a downward slope in the short run through the long-run effect contradicts the law of demand. The bandwagon effect is the tendency of beliefs spreading among the people with the probability of those who adopt it increasing with the proportion of those people who have already adopted them (Leibenstein, 1950, p. 195). Such trends occur in the fads and the fashion industry whereas more people believe in something, others have to jump on the bandwagon regardless of the evidence available. Two factors lead to peoples’ tendency of following other people’s beliefs. It can either occur because individuals prefer to conform to reality or because people prefer to derive certain information from other people. These two explanations used to explain the conformity of people in various psychological experiments successfully establish that people will purchase something so long as other use it. To prove that the 'law' of downward sloping demand is wrong, the bandwagon effect holds that people will buy any popular commodity regardless of the price of the commodity (Leibenstein 1950, p. 197). As the price of the commodity increases, and its popularity increase, more people purchase it. Therefore, such a commodity is regarded as behaving contrary to the law of demand, proving the assumption of the law wrong.

As the price of the commodity decreases, the demand decreases, showing that these commodities do not obey the rule of demand

Economically, a Veblen good belongs to a group of commodities whose people’s preferences of buying those increases with the increase in their prices. The analogy behind this behavior is that as the price of the commodities increases, the more the status of people (Bagwell & Bernheim 1996, p. 354). Instead of obeying the law of demand of downward sloping curve, the Veblen effect acts otherwise. Veblen goods are luxury goods that are highly priced and are hard to come by for ordinary people. These goods include high-end wines, designer handbags, and wallets, luxury cars among others. Their rationale is that their demand decreases with the decrease in their prices. This is because people stop viewing them as exclusive commodities or high-end products that define class and style. When the price of these commodities decreases, their demand curve behaves abnormally according to the law of demand (Bagwell & Bernheim 1996, p. 367). Since the demand for a Veblen good increases with the increase in price, the demand curve is positively sloping, proving that the 'law' of downward sloping demands is wrong.

There is a decrease in the number of goods demanded as the prices of these commodities decrease, which is contrary to the law of demand.