Factors Contributing to the Overall Demand for Luxury Goods - Essay Example

In some situations, the demand will stay steady despite the economic situation in the country.  Another issue is the “ego thing” people will buy expensive goods (such as premium cars) because they want others to see their social status.  If to look at the demand for expensive houses, demand is affected by the situation in the stock markets – if people do not need to buy another house, they would consider the option of investing the money into real estate or the stock market to gain profits in the short term.  If the consumer wants to get long-term profits, he would invest in luxury products and the demand will go up.

How does the demand affect the supply of such goods offered for sale?

The decreased demand leads to a decreased supply of luxury goods and an increased supply of goods aimed at middle-income people.  As a result, companies tend to introduce products that are more innovative and cheaper.  Luxury goods are still desired, but less demanded and less purchased.  However, when people buy luxury goods as a means to show their social standing, the supply will not be affected because the demand stays the same as well.  Looking at the never decreasing supply of luxury high-end clothes, it is possible to say that the supply of expensive cloth will never go down and it is not affected by any economic factors.  The demand for luxury electronics depends on the desire of potential customers to change their old devices to new ones as well as on the price of the new devices.  For example, if the demand for high technological devices goes up, the supply will go up as well as the price.

What factors affect the marginal utility of such luxury goods with large net worth?

The marginal utility of luxury goods, such as expensive houses in prestigious districts and expensive cars seems not to be affected by any factors.  People perceive the purchase of the house as a good long-term investment.  If there are other alternative options to earn more return on investment in the short run, the marginal utility of the luxury goods will go down because people will be willing to purchase less.  However, some the luxury products such as makeup, services, and electronics will never lose their marginal utility because, for some categories of people, these products become a necessity.   People are more concerned about the money they have and the amount they spend.  Restaurant and hairdressing industries will lose marginal utility because do not see spending money on eating as an investment that will yield more money.  Therefore, if a luxury good is not perceived as an investment, the marginal utility is decreased.

What is the marginal utility of a Rolls Royce Silver Cloud to you?

The marginal utility of a Rolls Royce Silver Cloud is high because the value of cars tends to increase over time and the older an exclusive car the more expensive it will be in ten years.  However, I do not plan to buy such a car soon – if I would have the necessary amount to buy this model I would rather find another way to invest my finances and earn more money in the long term rather than wait until the moment when the prices for Rolls Royce Silver Cloud would increase enough for me to earn big money on the sale.  Most of the exclusive goods are purchased impulsively, and for this reason, a Rolls Royce Silver Could has low marginal utility for me – I am rather rational than the impulsive buyer.  When choosing the car, I would pay more attention to the correlation between price and quality rather than prestige.