In order to help us better understand supply and demand, economists have placed the things we buy into different categories. One such category is a positional good, described by Dr. Sheldon Cooper as “an economic concept in which an object is only valued by the possessor because it’s not possessed by others.” The ubiquitous character from The Big Bang Theory went on to describe the term—coined in 1976 by economist Fred Hirsch—as a replacement for “the more colloquial, but less precise neener-neener.”
There are four other categories, including normal goods, inferior goods, Giffen goods, and Veblen goods. Normal and inferior goods are tied together as the inverse of one another, meaning “what is a normal good for one person may be an inferior good for another person, and vice-versa.” When the income of the people in a particular market increases, a normal good’s demand will increase; if the demand for a good decreases under the same circumstances, the good is dubbed inferior. In the area of transportation, for example, riding in a limousine would be a normal good and riding the subway would be an inferior good.
A Giffen good, while rare, is theoretically a good whose demand decreases when the price drops, creating a stigma among consumers that the good is so inferior, and/or of poor quality, that it reflects poorly on those who consume it. However, the increase in the price of a Veblen good—named after economist Thorstein Veblen—increases demand for the good because it projects a sense of status, the opposite, if you will, of a Giffen good. Both of these designations wind up having less to do with their true quality than a shift in the tastes of consumers. This fits with another term coined by Veblen—and a subject I have tackled in a previous column—conspicuous consumption, in which “consumers who buy expensive items to display wealth and income rather than to cover the real needs of the consumer.” Think vacations and luxury cars rather than stay-cations and the reliable used car.
When we extend our example from vacations and luxury cars to exotic vacations, Bentleys, and 100-ft. yachts, we return to positional goods. Like Veblen goods, positional goods “act as status symbols, signaling their owners’ high relative standing within society. To accomplish the goal of signaling high standing, positional goods must be available only to those within a desired group,” such as the extremely wealthy. And while positional goods derive most of their over-the-top value “from the level of reliability with which they serve to distinguish their owners as members of the favored group,” a positional good’s original path to status symbol began with a foundation of “superior quality and features.”
Enter Quality magazine. Ensure the superior quality of the goods you produce with this month’s selection of articles, including “Why Multisensor Metrology Matters,” “7 Ways Technology Can Streamline Your Document Control Process,” and “Fixturing Makes Strides as Manufacturing Advances.” Also, meet Quality’s 2016 Professional of the Year, Praveen Gupta, in “The Innovative Quality Expert.”
As always, enjoy and thanks for reading!