scorecardresearchIs it worth buying a commodity of high cost?

Is it worth buying a commodity of high cost?

Updated: 17 Mar 2022, 10:45 PM IST

Consumers shouldn’t assume that all good-quality products are expensive and that all low-priced products are bad-quality. One should always do research before buying a product.

It is important to understand how to spend money wisely.

It is important to understand how to spend money wisely.

Have you ever wondered why people want to buy high-priced commodities, especially from good brands? Did you find yourselves awestruck when you are told that a painting by Leonardo Da Vinci named ‘Salvator Mundi’ was sold for $450.3 million? It’s the Giffen paradox that prompts the consumers to buy a product for a high price.

It is indeed surprising as the painting carried such weightage due to several reasons and the most significant reason would be the painter himself, leading us towards the Giffen paradox. Similarly, vintage cars are priced high as they carry an age-old value that attracts consumers. So, here it’s less of the car itself and more of the value that it carries which determines its price.

Law of demand and price

The mutual co-existence of the original and the contradiction is the beauty. Similarly, there is a contradiction to the law of demand as well. Originally, the law of demand indicates the change in quantity purchased of a product based on its price and this is usually inversely proportional.

The Giffen paradox on the other hand indicates that there is a positive relationship between price and quantity demanded of the commodity.

Psychological impact

Oftentimes, there is a perception that only expensive products can be of desirable quality and durability. In certain scenarios of inadequate market knowledge, we may straightaway buy a product based on this perception, thus nullifying the law of demand.

Additionally, the factors like future commodity value or being influenced by the endorsements of a certain branded product are also the reasons for the Giffen paradox to work. If we look at it, we hear about how an abstract painting has been sold at a sky-rocketing price and there can be two sides to this.

Either the buyer has a clear knowledge of what the painting conveys, otherwise, he/she must be convinced that since the painting is being sold for a whopping price, it must be worth it.

Based on these theories, consumers are often found patronising the products that are branded and luxurious. The happiness derived from the purchase of such products is intangible.

Anyhow, it is important to understand how to spend money wisely, given the paradoxes. We tend to purchase expensive commodities although it isn’t necessary to spend so much and this phenomenon is quite natural. So, it depends on the consumer whether to buy a commodity at a high price or not.

Key parameters to consider before buying midcap stocks
First Published: 16 Feb 2022, 01:20 PM IST