Veblen Goods

Another exception to the law of demand was given by the economist Professor Thorstein
Veblen, who proposed the concept of “Conspicuous Consumption.” According to Veblen, there
is a certain group of people that measures the utility of a commodity purely by its price, which
means, they think that higher priced goods and services derive more utility than the lesser
priced commodities. Utility for such people equates to their social image- that is more prestige in
society and self-image that is often, cars, houses and jewellery are considered to be
aspirational goods especially for people in their 20s.

Luxury commodities like Diamonds, gold, platinum, ruby, etc. are often bought by the upper
strata of the society (rich class) for whom, the higher the price of these goods, the higher is the
prestige value and ultimately the higher is their desirability.

These goods are not bought for the satisfaction but for their ‘snob appeal’ or ostentation. The
prestige of owning such goods is more important than the mere satisfaction if any they derive
out of it.

Explain the graph

Now coming to the graph on left hand side,

The dotted line horizontal to the x-axis represents the threshold price beyond
which the law of demand is not applicable. Below this threshold price the
relation between the price and quantity demanded of a good is indirect,
however above this threshold, with an increase in price of a commodity, there
is an increase in the quantity demanded.
Ignorance
It is said that Ignorance is Bliss. But is it though? When Price becomes an Index of quality for a
consumer, a low priced commodity is considered inferior hence less quantity is purchased, while
a high-priced commodity is treated as superior, hence more quantity is purchased.

So when the buyers are ignorant about the quality of a commodity, they often tend to form the
price of the commodity as a basis for purchasing it.

In this case, more quantity is being bought at a higher price and less quantity at a lower price.

The law of demand is not applicable in this case.

Necessities of Life
There are certain goods that are absolute necessities of life. In case of certain highly essential
items such as life-saving drugs, people buy a fixed quantity at all possible prices.

For example, I have a unique life-threatening disease for which fortunately, a drug has been
manufactured. So for a fixed quantity of that drug that can save my life, I will be willing to pay
any price.

An important point to note here is that we are talking about the necessities with very less or no
close substitutes.

Moving on, we come to conspicuous necessities which are the essentials of modern life. These
are the goods and services that consumers buy irrespective of an increase in the price. Some of
the examples seeing the current situation could be laptops and an active internet connection.

Now with this we have come to the end of our presentation. But before we conclude, let us look
at an interesting phenomenon that we came across while researching the exceptions.
This phenomenon is called Planned Obsolescence. (Ob - so - less - uns )

Planned Obsolescence

Planned obsolescence describes a strategy of deliberately ensuring that the

current version of a given product will become out of date or useless within a
known time period. This proactive move guarantees that consumers will seek
replacements in the future, thus bolstering demand.

This is often achieved either by introducing a better model by changing its

shape, size, colour, features etc. or by intentionally designing a product to
cease proper function.

An example of the former could be the endless models of iPhones that we

have witnessed since their release in 2007. Over the course of 15 years, we
have seen the clearly visible changes in the shapes, sizes, colours and
features of iPhones, keeping their demand as intact as ever.

An example of the latter could be that prior to 1924, the average lifespan of a
light bulb was around 2,500 hours. But in December 1924, a global organisation
known as the Phoebus Cartel hatched a secret plan to increase sales by bringing
the average bulb's lifespan down to just 1,000 hours. This ensured that light
bulbs were still in demand and the light bulb companies were still in business.
This marks one of the first known examples of planned obsolescence.