Economic decisions vary from one individual to another based on the income, prices, taste and other goods’ prices. In an interview with a 28 year old chief executive of an Information technology company in California, these economic aspects became clear. The young chief executive comes from a rich family that owns information technology companies across California and a trucking company operating in Texas, Ohio and California States. The young man is well educated. At the time of the interview, he was in his final semester of his PhD in Information Technology and Business Management in an Ivy League University. He is a bachelor, but hopes to get married to his long time girlfriend in a year’s time. His life can be said to be lavish because of the heavy expenditure of expensive foods and drinks. He also resides in a expansive mansion owned by his family. Generally, the young chief executive’s total wealth adds up to approximately 25 million dollars. This is inclusive of the shares he owns in major companies in America such as Huffman Trucking. In his capacity as a chief executive, he earns 100,000 dollars a month. His total income per year is approximately 6 million dollars per year.
The interview was about a purchase decision he made recently, an engagement ring. The ring is said to be pure diamond with a golden heart shape on its top. The ring cost the young tycoon about one million American Dollars. He said he purchased the ring in cash from New York’s famous Fashion SoHo District. The decision is not surprising at all for an individual who earns 6 million dollars per year. What is of interest is what made this young executive to decide to buy a diamond ring costing this much yet there are rings that are of exactly the same quality at almost one third of the price he purchased it. This ring can be classified as an ostentatious good. Decisions about ostentatious goods are usually different from those made concerning normal goods For ostentatious goods, the higher the price the more exclusive they are regarded by consumers hence the higher the demand for such goods. .
The price variable of the ring the young executive purchased is very big. This same ring can be purchased in Los Angeles at only 250,000 dollars. However, because it is an ostentatious good, the demand for the ostentatious good increases as the prices also increases. This is the reverse of the law of demand. Price variables for ostentatious goods such as the ring purchased by the executive did not affect his demand for the good. This is partly attributed to the large and stable income earned by rich individuals such as this executive. Therefore, such an individual experiences diminishing marginal utility of money and may not feel the monetary burden of purchasing the ring expensively. The huge income places these individual at a level where he demands goods that are of high quality that create exclusivity. In this case, the individual focuses more on how exclusive the ring is rather than its price. This individual has a taste for expensive and quality products. He uses the expensive price to distinguish the quality of the good from other similar products. The prices of other ornaments tend to influence the executive’s decision to purchase this ring. Since he considers himself a rich person and wants to purchase the best for his girlfriend, he decides to purchase a ring that is more expensive than that of other rings.
Works Cited
Lipsey, Richard G and K Alec Chrystal. Economics. 11, illustrated. London: Oxford University Press, 2007.
