The Economist notes the
evolution of the economics of luxury goods over the past year: while the
goods themselves have increased in price by 6%, twice the rate of inflation,
the income of the rich has increased by 9%, or three times the rate of inflation.
So a question for any economists reading this: what should happen to demand
for luxury goods in such a situation? (Assume that only the rich buy luxury
goods, for the sake of argument, and assume also that these aren’t Veblen goods
which are bought because they’re expensive.) On the one hand, when
the price of a good goes up in real terms, then demand falls. On the other hand,
the price of the good is actually going down in percentage-of-disposable-income
terms, which implies that demand will rise.
But I think there’s another, subtler question lurking in the background, which
has to do with the psychoeconomics of purchasing decisions. If you want a certain
good, there are two reasons why you might not buy it. The first is simply that
it’s too expensive for you: you can’t afford it, or buying it will eat up too
much of your disposable income. The second is unrelated to the amount of money
you have: if someone tries to sell you a biro for $300, you’ll refuse to buy
it, even if you want a disposable pen and even if you’re so rich that you wouldn’t
even notice the loss of $300.
I ask this because right now I’m torn about a forthcoming meal. There’s a certain
restaurant I want to go to. It’s a very good restaurant, and it’s rather expensive,
and frankly it’s well outside my normal budget for such things. But I’ve heard
amazing things about the place, and I have a special occasion coming up, and,
if I only go there once this year, I can afford it. So half of me (actually,
a bit more than half, since I’ve made the reservation, and will be going there)
says, well, this is what it costs, you want it, you can afford it, so just spend
the money already.
But part of me is rebelling, too, and saying that the restaurant is overpriced,
even if it is excellent, and that therefore I shouldn’t be going. The
restaurant in question makes it essentially impossible not to spend
a lot of money: there’s a prix-fixe menu with no a la carte option, the wine
list is expensive, and their corkage fee is very high too. There’s no way a
meal for two is going to cost less than, say, an 80GB
iPod, or a 13"
x 19" Mike Monteiro print in an edition of 20. And that’s excluding
whatever I spend on a bottle of wine, if I bring one with me. If there are other
things which are cheaper and which I’m not buying and which I value more, should
I not go to the restaurant?