Skip to content

CMA Foundation · Fundamentals of Business Economics and Management · Theory of Demand and Supply

A jeweller in Mumbai notices that when the price of a rare diamond necklace is raised from ₹8 lakh to ₹10 lakh, wealthy buyers rush to purchase it because it is seen as a symbol of status. Which concept does this behaviour illustrate?

This illustrates a Veblen good. Wealthy buyers purchase the necklace for status, so a higher price increases its prestige value and demand, which is an exception to the law of demand. Giffen goods arise from poverty and inferiority, not conspicuous consumption.

  1. AGiffen good
  2. BVeblen goodCorrect
  3. CComplementary good
  4. DInferior good

Explanation

Veblen goods are bought for prestige or conspicuous consumption, so a higher price makes them more desirable, giving an upward-sloping demand curve. Giffen goods are inferior staples where the income effect dominates, which is not the status motive described here.

Did you get it right without looking?

One question tells you little. A timed set on Theory of Demand and Supply shows your real accuracy, how long you take and where you lose marks.

Practise Theory of Demand and SupplyFree diagnostic mock

More Theory of Demand and Supply questions