Toothpaste Is Never Just Toothpaste, a Dress

Toothpaste is never just toothpaste, a dress is never just a dress, a car is never just a car in those economies where consumers have demand for a variety of options and the ability to consume a selection of products and services. There are several economic principles at play including demand, customer satisfaction, consumer choices and the income effect. Products in countries where the average consumer has minimal disposable income such as in 3rd world or emerging countries have demand curves with a small range of elasticity.

Meaning the range in price a consumer is willing and able to pay for a particular product is relatively small. There simply is no incentive to provide products that consumers aren't wailing and able to pay for. In developed countries where consumers have a higher disposable income the demand for a variety of products and services is much greater. The elasticity of the demand curve for a product such as toothpaste is much wider; people are willing and able to pay for options even at a higher cost.

Therefore, companies provide products in demand by consumers and the price of the products are determined by the intersection of the supply and demand curves. Consumers aim to reach the highest possible point on the indifference curve to maximize total satisfaction. The greater the income the higher the indifference curve. Budget constraints are very minimal at this point, meaning that consumers can afford wider selection of products than those consumers with tighter budget constraints.

This is why we see some very wealthy individuals with custom cars or very high-priced items not available to or affordable by most of the population. While its true a car that costs $10,000 can get you to from point A to point B. As well as a car that costs $100,000, the income effect tells us that a consumer with more income will shift away from what they deem inferior products and services which usually cost less in favor of higher priced goods.

In layman's terms, the more disposable income one has, the more variety and choices they demand. In economies where consumers have higher disposable incomes it's all about variety and choices. The wealthy woman's $75,000 art sculpture is of no value to the woman living on the streets. To the homeless woman this expensive item yields her no utility even though the wealthy woman paid a whopping $75,000 for it. Total utility will differ vastly depending upon a persons' disposable income.

To the poor woman toothpaste is just toothpaste, but to the wealthy woman her preferences and income allows her the ability to choose amongst a variety of options to maximize her total utility. Would.