Joshua Leifer A.P. Microeconomics Mrs.

Sawhney December 5, 2011 At first glance, Virginia Postrel¶s article, The New Trend in Spending, appears to detail a discussion of consumer choices. It compares the spending habits of Americans with regard to inferior and superior goods and goods that are either luxuries or necessities. She presents evidence suggesting that as income levels in America have increased, Americans spend a ³a greater proportion on intangibles and relatively less on goods.´ Indeed, Americans have begun to devote increasingly large proportions of their income to the consumption of services that obtained in hotels, health clubs, and hospitals while spending much less on food, except for food consumed in restaurants. This is because, the author argues, restaurants provide more than simply food; restaurants provide a service in the experience one can obtain from eating at a restaurant. Thus, the new trend in consumption would appear to be driven by the increased demand of consumers for experiential consumption of both goods and services. ³Customers,´ Postrel writes, ³are paying for memories, not just fuel. The rational behind Postrel¶s argument rests upon a single axiom - the incomes of American consumers have been rising consistently. Whether the result of the income effect - a decrease in prices corresponds with an increase in real consumer income ± or the result of real economic growth, the nature of the 12 argument remains the same. Relative to the prices of goods, 10 American incomes have risen. It is cheaper than before to pay for the 8 bare necessities of existence, so the 6 Supply American consumer can keep more earned income in his or her pocket. Demand 4 Rather than using the increased funds to consume more goods, 2 consumers have decreased 0 consumption of goods and 1 2 3 4 5 6 7 8 9 10 11 increased consumption services that provide experiences. Using traditional economic reasoning, this means that at a certain level of income or development, food and similar goods become inferior goods, while experiences and services become superior, or normal goods. As incomes rise, the quantity of food or tangibles demanded decreases, while the quantity of experiential services demanded increases. A contemporary economist, someone concerned primarily with predicting economic trends in consumption and production, would undoubtedly use the assertions contained in the article to predict trends in consumption and consumer choices. In keeping with the reasoning of the author of the article, we can expect to see consumers continuing to devote more of their incomes to experiential purchases than to purchases of the kinds of goods obtained at an ordinary retail store. For entrepreneurs and venture capitalists, this means that the big money is to be found, not in old-style firms selling products, but in firms selling a marketable experience. Since ³as incomes rise, people find that additional experiences give them more pleasure than

new age spiritual retreats.´ the next big market in industrialized and modern 12 countries will be the market for 10 memorable events or occurrences. Those goods that were once stark symbols of status ± televisions. this is because the disparity. or leisure. who published the most famous non-Marxist class analysis of the United States. but by their consumption of experiences ± expensive vacations. class. After all. wealthy assert their authority and material superiority through the consumption of intangibles. Pecuniary emulation explains why poor men in impoverished urban areas wear massive displays of gold or silver jewelry. . The effort to equal or surpass another in status associated with wealth. this only applies for those consumers whose income have reached such a level that tangible goods are considered inferior goods while experiential purchases are superior goods. American economist and sociologist. there appears to be evidence for a new theory of class and capitalist consumption. However. It would appear 8 that this shift in consumer Supply 6 preferences is endemic enough to Demand have altered conceptions of 4 marginal utility. and why people purchase expensive cars or appliances even when doing so may jeopardize their fiscal solvency in the future. The super-wealthy now assert their status. argued that there exists a type of behavior called pecuniary emulation. ³people find additional experiences give them 2 more pleasure than additional 0 possessions. an economist concerned with analyzing the reasons behind economic trends may have a different take on the evidence presented in the article. refrigerators.possessions. or pecuniary emulation. What now separates consumers is their ability to purchase experiences. not through the gross consumption of goods necessarily. not everyone can take a trip to a resort in Costa Rica or a guided tour through the Maldives. between the wealthy and the poor. Veblen essentially argued that much of human consumption was caused by the conceptualization of goods as status symbols. Rather. Arguably. Yet. has narrowed compared to what it was one hundred years ago. luxury spa treatments and so on. in terms of deprivation.´ It is important to 1 2 3 4 5 6 7 8 9 10 11 note that while experiential purchases provide consumers with more marginal utility than do tangible purchases. in Virginia Postrel¶s article. According to the evidence presented. Since everyone has electricity or a car. consumers attempt to consume experiences. consumers no longer consume goods to present a certain status or level of affluence. Thorstein Veblen. is the motive for consumption by all but those in the upper-most. fancy or themed restaurants. automobiles ± can be found even in the most cash strapped of working class families.

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