Question

Good convred by demonstration effect can be best described as

Answer 1

Answer:

Conspicuous Necessities

Explanation:

Demonstration effects are effects on the behavior of persons as a consequence of observation of the actions of others and their repurcussions. The term is particularly used in political science and sociology to describe the fact that developments in one place will often act as a catalyst in another place.

The concept of demonstration effect in consumption was formulated by Dussenbery in an interpersonal framework. This idea led to the formulation of Relative Income Hypothesis in consumption.

By emphasizing relative income as a determinant of consumption, the relative income hypothesis suggests that individuals or households try to imitate or copy the con­sumption levels of their neighbors or other families in a particular community. This is called demon­stration effect or Duesenberry effect. Two things follows from this. First, the average propensity to consume does not fall.

This is because if incomes of all families increase in the same proportion, distribution of relative incomes would remain unchanged and therefore the proportion of consump­tion expenditure to income which depends on relative income will remain constant.

Secondly, a family with a given income would devote more of his income to consumption if it is living in a community in which that income is regarded as relatively low because of the working of demonstration effect. On the other hand, a family will spend a lower proportion of its income if it is living in a community in which that income is considered as relatively high because demonstration effect will not be present in this case.

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