Prime Minister of India in Kannada for UPSC | ಭಾರತದ ಪ್ರಧಾನ ಮಂತ್ರಿ

What are Veblen Goods?

• Definition: Veblen goods are a category of goods for which demand increases as their price rises, defying the law of demand. This is because higher prices are perceived to reflect higher quality, prestige, or social status.
• Named After: American economist Thorstein Veblen, who introduced the concept of conspicuous consumption in his book The Theory of the Leisure Class (1899).

Key Characteristics of Veblen Goods

1. Conspicuous Consumption:
   • Consumers buy these goods not for utility but to display wealth and social status.
2. Price-Demand Relationship:
   • Higher prices make these goods more desirable, as they become symbols of exclusivity.
3. Luxury and Prestige:
   • Veblen goods are often luxury items associated with a brand or status.
4. Elastic Demand at Higher Prices:
   • Demand for these goods increases as prices rise up to a point.

Examples of Veblen Goods

1. Global Examples:
   • Luxury brands like Rolex, Gucci, and Louis Vuitton.
   • High-end sports cars like Ferrari and Lamborghini.
2. Indian Context:
   • Gold jewelry, luxury villas, branded apparel, and premium cars.

Veblen Goods vs. Giffen Goods

Aspect	Veblen Goods	Giffen Goods
Price-Demand Relationship	Demand increases with price rise	Demand increases with price rise
Reason	Prestige and social status	Income effect outweighs substitution effect
Type of Good	Luxury good	Inferior good
Examples	Designer brands, luxury cars	Staple foods like rice or bread

Economic Implications of Veblen Goods

1. Indicator of Wealth Disparity:
   • Rising consumption of Veblen goods reflects income inequality and growing disparities.
2. Impact on Inflation:
   • Higher demand for Veblen goods during inflationary periods may distort the actual demand-supply scenario.
3. Role in Taxation:
   • Veblen goods are often subjected to luxury taxes, which serve as a revenue source for governments.

Veblen Goods and Policy in India

1. Luxury Taxation:
   • India imposes high GST rates (28%) on luxury items to discourage excessive spending and promote equitable resource allocation.
2. Wealth Redistribution:
   • Revenue from taxing Veblen goods can fund social welfare programs.
3. Economic Growth:
   • The luxury goods market contributes to the economy by boosting sectors like retail, manufacturing, and services.

Relevance for UPSC

1. Economic Theory:
   • Helps understand exceptions to the law of demand and consumer behavior.
2. Social Context:
   • Highlights issues of wealth disparity, conspicuous consumption, and aspirational behavior in a developing society like India.
3. Policy Framing:
   • Insights into taxation policies, inequality mitigation, and sustainable consumption patterns.

Example UPSC Questions

Prelims:
Q. Veblen goods are characterized by:
a) Negative price-demand relationship
b) Increased demand with rising prices due to social prestige
c) Inferior goods with positive price elasticity
d) Necessities with inelastic demand

Answer: b) Increased demand with rising prices due to social prestige

Mains (GS-III):
Q. Explain the concept of Veblen goods with suitable examples. Discuss how conspicuous consumption reflects income inequality in India and suggest measures to address it.

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