A Level Economics AQA Practice Exam

Which statement best describes a Veblen good?

1. A good that is purchased less as price increases

2. A good that has a negatively sloped demand curve

3. A good people buy more of as the price increases

4. A good with an income elasticity of demand equal to 0

The correct answer is: A good people buy more of as the price increases

A Veblen good is characterized by a unique relationship between price and demand, where higher prices actually lead to an increase in quantity demanded. This apparent paradox arises because Veblen goods are often seen as luxury items that convey status or prestige. When prices rise, they may signal higher quality or exclusivity, thereby making these goods more desirable to certain consumers who want to showcase their wealth or social status. This behavior differentiates Veblen goods from normal goods, which typically exhibit a negative relationship between price and demand. Understanding this concept is crucial, as it highlights how consumer behavior can diverge from typical economic assumptions about demand. In the context of Veblen goods, the higher price can enhance their appeal, leading to increased purchases rather than a decrease.