The Economics of Shopping

This is a very interesting topic because it touches on the decisions people make when it comes to selecting, buying and using goods, services and information to satisfy their needs. In Economics, it has been observed that certain behavior arises when there is interaction of the consumer and certain goods, services or information.

Advertising is a big influence on spending habits because the images consumers are exposed to help them make decisions as to what to buy to fulfill their desires to fit within these images. More than that, social class has a great influence too, so that if a consumer belongs within a certain class, there are certain goods or services that he will consume in line with his class, say expensive wine for dinner for a higher social class versus a cheaper brand for a lower economic class. And demographics such as age or sex or even culture determine what people buy.

The usual consumer behavior follows the pattern that demand and supply determine what prices are in the market. The lower the price, the more of the product the consumer demands. The higher the price, the more the suppliers are willing to bring to the market. When market forces of demand and supply interact, then an equilibrium price is determined so that both the buyers and the sellers are satisfied with the price.

There are some exceptions to this rule though.

Consider a good or service is demanded due to its rarity or ‘snob’ value. This usually means that the more limited an item is, the higher it’s ‘snob’ value hence its demand and price. Take the example of rare art pieces, or designer clothing or vintage cars whose values are so high just because they are rare. Some consumers will desire and buy the rarest form of goods at very expensive prices and this behavior is called the snob effect.

Or the bandwagon effect, whereby a consumer wants a product because other people have it irrespective of price. Take the instance of fashion goods where whether the price is high or low, some people will buy them just because everyone else has them.

The Veblen-effect occurs when the consumer demands a good as long as its price is high. A good example of this is expensive wine. In this case, if the price falls, the product loses its “value” and hence its consumers move on to the next expensive item.

All of these exceptions play a very important role in spending. It is important to realize that each of this behavior has its place and time and economically it is not all wrong. It supports the core of Economics which is to encourage spending. It is up to the consumer to determine whether he can afford to take up any of the exceptions and their effects. �©