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CHANGES IN TASTES, PREFERENCES,
AND GOODS
The model of consumers’ constrained optimizing behaviour that we have been developing focuses on how we select the best feasible or affordable bundle from a given range of
goods, with given money income, given prices, and given tastes or preferences as represented by an indifference map. Yet, over time, people’s tastes or preferences can change,
goods that were once available can disappear from the market, and new goods can
appear in the market. Indeed, the fact that new goods appear and existing goods disappear means that in our model, tastes and preferences have to change over time. After all,
it makes no sense to have a preference ordering over goods that no longer exist, while
our completeness assumption means that we have to have preference rankings for new
goods as they become available. Even if there is no change in the range and quality of
goods available, however, tastes can and do change.
Depicting Changes in Goods and Tastes
We can fairly easily incorporate into our model the effects of changes over time in the
range of available goods and in tastes. Since each axis of our diagram measures the consumption flow per period of a single specific good, we can represent a change in the
number of goods available simply by changing the number of axes and relabelling them
appropriately. Suppose that at time t, only goods X1, X2, and X3 are available. Then our
indifference contours and budget line are defined in the three-dimensional space, with
the quantity of one of the goods along each of the three axes. If in period t 1, good X2
has disappeared but goods X4 and X5 are now available, then we define preferences and
the budget line over the four-dimensional space, with the quantities of X1, X3, X4, and X5
along the four axes.1
Similarly, to represent the effects of changes in tastes over time, we can simply redraw
the indifference map. Figure 3S-1 illustrates a change in tastes for a consumer, Hedonistica,
1
In practice, for three or more goods, we typically use vector notation and analysis instead, partly because of
the difficulties of drawing higher-dimensional diagrams on a two-dimensional page.
DEPICTING CHANGES IN GOODS AND TASTES
3S-1
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FIGURE 3S-1
A Change in Tastes
The black indifference
curves IA and IB describe
the consumer’s
preferences in period t;
the blue indifference
curves IA, and IB, describe
her preferences in period
t 1. Her indifference
curves reflect a shift
toward a stronger
preference for X in
period t 1.
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Y (units/pd.)
Y
9
— = —
X
2
IB
90
B
Y
3
—= —
X
4
B’
60
I B’
IA
A
30
20
O
I A’
A’
20
40
60
Y = —
1
—
X
3
80
100
X (units/pd.)
who consumes only two goods, X and Y. In both periods t and t 1, she faces prices
PX $1/unit and PY $2/unit. The figure shows her best affordable bundles when her
income is $100 (A in period t, A in period t 1) or $200 (B in period t, B in period t 1).
Note several features of Figure 3S-1. First, X is an “inferior” good (see Chapter 4) in
period t: with an income of $100, Hedonistica would consume 40 units of X, but with an
income of $200, she would consume only 20 units. In period t 1, X has become a normal good. Not only will she consume more X at each income level than she did in
period t, but she consumes more X at the higher income level.
Second, although the proportion of her income that she spends on X and Y is the
same at A and at B, this does not mean that her tastes are the same in both periods;
rather, it is a coincidental result of the change in tastes. Third, her indifference curves for
period t 1 intersect those for period t. This fact does not violate our nonintersection
rule, because that rule holds only for given tastes. The fourth feature is not as obvious,
but is still very important. When her tastes change, even if her income and prices remain
unchanged, we can no longer say whether Hedonistica is “better off” in period t or in
period t 1, because from a theoretical standpoint, she is now a “different” person.
What we can say is how this “different” person, with her changed preferences, will
respond to various price and income combinations.
Causes of Changes in Tastes
Economists, however, are interested not only in the effects of changes in tastes, but also
in the causes. People’s tastes and preferences can change for many reasons. Some needs
and preferences are at least partly age-specific. Our favourite TV programs when we
were children now often strike us as being childish. One of the side benefits of certain
kinds of music is that they drive parents crazy. The human life cycle has been described
as a progress from diapers to underwear to diapers. A younger population will tend to
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have greater demands for education; an aging population will have greater demands
for health care, medicine, and retirement facilities. Individuals’ needs and preferences
similarly tend to reflect their ages and to change with age.
A second important source of changes in tastes is learning and experimentation. Our
basic model of consumer behaviour assumes complete knowledge of the need-satisfying
qualities of all commodities, and a complete preference ordering. In practice, however,
there are many goods that most of us have never owned: small $350 jars of caviar, $1.5
million yachts, and $80 million mansions come to mind. Most of us have not tried even
a fraction of the goods that we could afford, and with thousands of new products coming onto the market each year, we are destined to be always less than “fully informed
consumers.”
Consequently, some of our acts of consumption are experiments—a means of learning how (or whether) goods that we are not yet familiar with can satisfy our needs. For
those with very low incomes, such experimentation may be an unaffordable luxury, yet
a sharp increase in our income level, or a sharp drop in the price of an unfamiliar good,
will increase the chances of experimentation. If the new good has very attractive characteristics, it may well become part of our “normal” consumption pattern. Manufacturers
often launch a new product with free samples or deeply discounted prices for this very
reason—to increase the number of experimenters.
Preferences can change not only as a result of direct consumption experience but also
as a result of indirect or mediated information. Such information could be something as
simple as a trusted friend’s “Try it, you’ll like it!” It could take the form of a government
announcement about the health or safety hazards of consuming a particular item, or a
consumer advocacy group’s call to boycott a polluting company’s products. It could
also be a TV commercial that provides new information on the characteristics or uses of
a good or simply generates favourable and memorable emotional associations. In most
cases, however, unless the good itself lives up to its advance billing when it is actually
consumed, such indirect information is unlikely by itself to result in a change in tastes.
There is, however, one significant potential exception to this rule of thumb: fashions,
fads, and crazes. Normally we assume that the satisfaction from consuming a good
stems from its “innate” want-satisfying characteristics. Yet apart from these inherent
characteristics, goods can at times acquire the capacity to confer social status, acceptance, or distinction. We are familiar with lists of “What’s hot and what’s not!” A
trend-following consumer would not be caught dead in an outfit that was out of date.
Such “bandwagon” effects not only increase the volatility of tastes, but also complicate
our basic model of consumer choice since it assumes that each consumer’s choices are
independent of those of other consumers. In several later chapters, we analyze some
effects of such interdependent preferences, but in Chapters 3 and 4, we assume that
there is no interdependence.2
2
For further reading, see David Foot and Daniel Stoffman, Boom, Bust and Echo, Toronto: Stoddart, 2001; Harvey
Leibenstein, “Bandwagon, Snob, and Veblen Effects in the Theory of Consumers’ Demand,” Quarterly Journal of
Economics, May 1950, pp. 183–207; Paul Ormerod, Butterfly Economics, New York: Basic Books, 2000; and Ian
Parker, “Commodities as Sign-Systems,” in Robert Babe, ed., Information and Communication in Economics,
Boston: Kluwer, 1994, pp. 69–91.
CAUSES OF CHANGES IN TASTES
3S-3