Judging quality by price, snob appeal, and the new consumer theory

ConclusionThe analysis contained in this paper has served two purposes. First, it has demonstrated the richness of “the new consumer theory” by showing how this new approach can incorporate the questions of judging quality by price and price-snob appeal. And second, the paper has derived analytically the conditions under which these phenomena will yield a positively sloping demand curve in a two-commodity, two-attribute world.In traditional theory the consumer's response to a change in the price of a good is conceptually divided into an income effect and a substitution effect. The new approach to consumer theory partitions the consumer's response differently, namely, into an efficiency substitution and a utility substitution. When a general price attribute is introduced each of these divisions retains its individual validity. The conclusion that the efficiency substitution is always non-positive also remains valid. But, the traditional substitution effect may now be positive and of sufficient magnitude to make theentire response to an own-price changepositive,∂xi/∂pi>0. We have shown analytically, then, as the verbal discussions of traditional consumer theory lead us to believe, that judgment of quality by price and price-snob appeal can result in positively sloped demand curves.