Question

You heard an economic commentator make the following remark, “Some goods are bought because they have a ‘snob appeal.’ For example, the residents in posher neighborhoods gain prestige by buying expensive items. They won’t buy some things unless they are costly. The law of demand, which holds that people buy more at lower prices than at higher prices, apparently doesn’t hold true for residents fo these neighborhoods. The following rules apply in the posher neighborhoods: high prices, buy; low prices, don’t buy.” Do you agree with this commentator? Why or why not? Use your knowledge of demand and supply when answering this question.

Answer 1

Snob appeal works the most in the context where goods are considered as the status symbol. Suppose if my neighbor is having a Patek Philippe watch, I may buy a Rolex watch to showcase my status. The practical user values are not much as the goods with snob appeal costs. When my neighbor is buying Patek Philippe watch I will not buy Titan watch because it is less costly than Patek Philippe. So I should agree that the higher price will appeal the most for my buying decision. Ultimately we can understand from the economic point of view that these goods have less practical value and more economic value. Despite this fact, the societal status symbol triggers buyers the most to have an expensive item just to compare the status of the neighbor.