Demonstration Effect

Demonstration Effect

　The demonstration effect refers to certain consumer individuals or families The impact of changes in consumption expenditure and income on the consumption expenditure of other consumers and households, that is, consumers compare each other spatially when consuming, trying to surpass others in consumption level or at least not lower than others in the same class. people. Therefore, consumers’ consumption expenditures are not only affected by their own income, but also by the consumption expenditures and incomes of others.

As far as low-income families are concerned, although their income is low, due to their relative status in society, they have to pretend to be fat and increase their consumption level. This psychology will cause the short-term consumption function to move upward as the average social income increases.

When current income is insufficient, consumers may use savings or borrow to increase their consumer spending. Its model is:

Among them:

In the formula, represents the average income of consumers, Y_i is the income of individual consumers, C_i is consumption expenditure.

Reasons for the consumption demonstration effect:

The “demonstration effect” of consumption is due to the externality of consumption, that is, preferences and utilities are not independent among individuals, but are interdependent.