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By "increase consumption of the higher-quality good," is that in absolute terms, or relative to the lower-quality good? Is there a concrete example of "reasona
by csense 14y ago
By "increase consumption of the higher-quality good," is that in absolute terms, or relative to the lower-quality good?
Is there a concrete example of "reasonable" demand functions under which a fixed increase leads to an absolute increase of the higher-quality good?
- deleted 14y ago[deleted]
- XEKEP 14y agoIn your example you should be adding a fixed cost to both goods. I.e. imagine, that a country introduced a universal vehicle tax of 20K. So, buyers will be choosing between 40K Toyota and 70K BMW. So, before the tax BMW would be 2.5 times more expensive then Toyota, but only 1.75 times after the tax. Which still does not answer the question about the increase in consumption in absolute or relative terms.
- jamesoswald 14y ago(Original Author): Relative. In the wine example, if you add a fixed cost, total absolute consumption will decline, but relative consumption of the more expensive one will increase. Likewise, when fixed costs are lower, absolute consuption increases, as per the law of demand. People spend more time watching media in general now than in the Middle Ages, but cat videos are relatively more popular.