Paying for More Than Clothing
Published: Friday, February 22, 2013
Updated: Sunday, February 24, 2013 16:02
It is a pretty well-known fact that the student population at Holy Cross has a moderately standard fashion style. You see a great deal of “Vineyard Vines,” “J. Crew,” and “Polo” products while traversing the campus from class to class. Fashion is not my strong suit, nor do I bother myself much with it. However, there are a plethora of economic principles at work when you examine the fashion choices by many Holy Cross students, mainly a reversal of the “law of demand.” “What does that mean?” you ask. Well we’ll take a closer look at how economics shapes your decisions at the clothing rack.
Now before we get to the tougher stuff, let’s take a quick look at the “law of demand.” While that may sound a bit intimidating at first, a closer look shows that it’s more common sense than anything else (although there is some complicated mathematics behind it, but who would really want to read that?). The law of demand essentially states that as the price of a good goes up, you are less willing to buy it. For example, I love the Red Sox and if Sox tickets are $10 then I am willing to buy 10 tickets over the course of the season. Let’s say that tickets are $30, then I’d be willing to by only three or four tickets instead. For future reference, goods where the law of demand applies are called “normal goods.” Pretty simple right, but there are some unique cases where the law of demand as described above does not apply so directly.
One case in particular is a reversal of the law, in other words as the price of a good goes up you are more willing to buy more of it. Now this hardly applies in normal goods like Sox tickets or Diet Coke, but there are a few special cases where it applies up until a point. These goods are called “Giffen goods.” The main category this reversal applies to consists of luxury goods, or goods in which the price demonstrates a level of quality.
Giffen goods can be luxury cars, products, houses… the list goes on and on. If you want to buy a nice house, you won’t settle for something that costs $50,000, but as the price goes up you get more and more interested. That’s why you see people with $1,000,000 houses or even multi-million dollar houses—they could easily buy a house for $100,000 but as the price went up they got more interested. In other words, the higher price conveys a message of value, you are more interested in a high priced house because it is more likely to be of high value.
Now how the heck does that apply to clothing here at Holy Cross? Good question, let’s take apply the Giffen good scenario to our clothing options. When you break it down cotton is cotton, silk is silk, and denim is denim. No matter where you buy it, it is the same exact material with one difference: the designer label. What makes a flannel shirt from American Eagle and J. Crew different? The name on the tag, and that in turn makes the price different.
Designer clothes are pricey because they are inherently worth more, they are priced more because the clothing companies realize that they are Giffen goods, and that the higher price communicates a message to the consumer. That high price, much like the price of a house, tells the consumer that the shirt is of high quality and conveys a sense of authority and high fashion. That is why people buy those clothes, because the price is high and much like a luxury house or car, it tells people something about you and your sense of fashion. If J. Crew shirts were half the price they are, how many do you think you would see here on campus? The answer is not many.
There you have it, a nice lesson on how economic principles are at work in our consumer choices when it comes to clothing. Giffen goods are out there, it’s not always the case that as the price goes up we buy less and so it is always useful to spot them in action.
Got a question about economics or an issue you want to learn more about? Email me and I will address it in my next column.