Question

In: Economics

Think about the products that you have purchased recently. Were they a want or a need?...

Think about the products that you have purchased recently. Were they a want or a need? Could you have purchased a "lessor" product? (Example: A Coach purse or a TJ-Maxx purse). Why do people "feel" like they need to purchase name brand or extravagant products. (Ex. Mercedes, Starbucks, Gucci, etc.) Comment on income levels and the substitution effect? Does the amount of disposable income really matter? (In other words, once your necessities (food, water, shelter, clothes, insurance, cell phone, etc. are paid, do you "need" to buy anything else (concert tickets, a new purse, a collectible, etc?

Solutions

Expert Solution

Today the world is on a standstill as the economy is under a lockdown hence all are restricted by different means as one can just fulfill the basic necessities hence are not able to fulfill one's wants and desires. There is always a possibility of buying a lesser product but choosing that product or not to has various other factors. There are the psychological explanations of people buying certain luxury products just because either someone else has it or it's about social status and prestige. For instance in India Nita Ambani, wife of one of the richest men in the world Mukesh Ambani spent millions in just buying a purse (world's most expensive bag).

As income increases, according to basic microeconomics our budget increases hence we not only purchase more but also shift from lower prices products to higher-priced maybe inferior to normal goods. For instance, while in college one cannot afford to spend lavishly on food or others but once we get into a job we tend to eat out, buy branded clothes and splurge much more. If we question that do we need the above extravagance, the plausible answer is no, but behavioral economics called it as mental accounting. Taking the above example of the world's most expensive bag, the bag will basically work like any other bag of say $ 100 but its the prestige and status that comes with it .


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