Chapter 11

Question 1

In what cases is overconsumption possible?

Answer 1

1. In the IPAT equation.
2. If more is not really better.

Question 2

What is the Easterlin Paradox?

Answer 2

Above a middle class income, money buys very little happiness, and it does so at a decreasing rate.

Middle income people are only a bit less happy than the richest.

Question 3

What are the social norms associated to overconsumption?

Answer 3

1. Bandwagon effect: a desire to consume something because others are as well.
2. Snob effect: the desire to do or consume something because others are not.
3. Veblen effect: a type of snob effect- conspicuous consumption.

Question 4

What factors explain the Easterlin paradox?

Answer 4

1. Social motives for consumption and the rat race: a way of life in which people are caught up in a fiercely competitive struggle for wealth or power.
2. Increasing importance of positional goods.

Question 5

What are the characteristic of the rat race?

Answer 5

Competitive consumption yields much smaller benefits to individuals when pursued at the society-wide level.

The rate race is a prisoner’s dilemma game. Everyone would be better off if the race was canceled. Yet, given that everyone else is racing, each individual is better off trying to win.

Question 6

What are positional goods?

Answer 6

Goods with a fixed or inelastic long-run supply.

Competition for positional goods drives up their relative price, creating a sense of deprivation. Over time, these goods become accessible only to the wealthy.

Question 7

How are positional goods are zero sum game?

Answer 7

For everyone person who gains access to a positional good, someone else must give it up.

Increases in income that are channeled into this competition do not increase overall welfare.

Question 8

Explain the utility function of social consumption.

Answer 8

Divided into bundles of competitive elements (positional goods + goods that yield utility as a result of social norms) and no competitive elements.

Economic growth that increases competitive goods for other people decreases Aldo’s happiness.

Increases in non competitive goods unambiguously increases social welfare.

Question 9

What is consumer culture?

Answer 9

A society in which consumption is a primary means of achieving social status.

Question 10

In which ways can economic policy change consumer culture?

Answer 10

1. Consumption taxes.
2. Regulation of advertising.
3. Mandating vacations.

Question 11

Is high consumption necessary for the economy to operate?

Answer 11

Not in the long run. As consumption is reduced, work hours would also be reduced.

Consumption reductions in rich countries need not imply employment reductions, only hour reductions.