Which of the following refers to the extent to which demand for a particular commodity decreases because others are also consuming the same commodity?
Show answer & explanation
Correct answer: A
Explanation
The correct answer is option 1 i.e. Snob effect.
The Snob effect is a microeconomic phenomenon where the consumer demand for a premium commodity decreases as more people begin to consume it. It represents the desire of high-income individuals to stand out and maintain exclusivity.
When a luxury item becomes common or loses its rarity, its psychological value drops for these consumers, leading to a negative network externality that contrasts sharply with the Bandwagon effect.