The Rich Drink Better Beer, Not More

The average item bought by the average buyer has an income elasticity of nearly one: most people roughly double their spending when their income doubles. But everything we buy consists of both a quantity dimension and a quality dimension.

What’s clear is that the income elasticity of demand for quantity is less than one: when our income doubles, we don’t double the number of cars we buy, the number of beers we drink in a day, or the number of houses we own.

The income elasticity of demand for quality must therefore be more than one: as our incomes rise, we increase the quality of what we consume. We shift from Honda Civics to Lexuses (Lexi?), Budweiser to Belgian dobbels, prefab houses to mini-mansions.

The reason is simple: it takes time to consume quantities, while the consumption of high-quality goods takes no more time than low-quality goods; and as we get richer we have no more time — we all face 24 hours in the day.

With incomes rising over time, businesses are smart to bet on the demand for quality rising — and to enter markets where the payoff is to quality not quantity.

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  1. jeffthecheff says:

    In taste: Pabst Blue Ribbon > Keystone > Bud, miller, coors

    In price: Bud, Miller, coors > Keystone > Pabst Blue Ribbon

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  2. Derick says:

    Of course “quality” is itself produced through marketing and other more subtle measures (as a slew of recent research on perceptions of wine has been showing) — the headline should really read “The Rich Drink More Expensive Beer, Not More.”

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  3. anonymous giver says:

    no matter how rich or poor I am, most alcohol tastes do nothing for me. However, if I was with certain people i know who are rich, they would offer me some world famous expensive import and probably insist that I try it, that it would be better and not bitter. I do not know how to explain that my taste buds refuse to be overridden by their luxury standards.

    I discussed this yesterday with someone. It was in the context of me refusing a drink, when in that culture it is rude to refuse something that is offered. It’s terrible to have to pour a rich man’s alcohol down the drain secretly, and against my own culture to be wasteful.

    Now I’lI accept the richman’s drink even if it gets me upset that I have to. It’s better than getting my testosterone levels worked up and starting a fight with family.

    Besides that, I found a happy biological medium instead of economical.

    licorice liquor. Licorice reduces testeosterone serum levels even in some healthy women. (probably ones from that Greek isle or even Lebanon where the drink is favored and flavored)

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  4. Randal says:

    Good beer is one of life’s many pleasures wasted on the young.
    Budweiser et al. are brewed to be as tasteless and inoffensive as possible to the most drinkers; it also makes it easier for somebody’s palate to learn to drink the stuff. They are to beer what factory-produced, skinless boneless chicken breast is to meat.
    I began enjoying beer many years ago, slightly before it was legal to do so, with Olympia Gold. Oly’s slogan was “it’s the water.” Our slogan for Oly Gold (their “lite” product”) was “… and not a whole lot more.”
    Some but certainly not all drinkers acquire a taste for more malt and hops. If we all did, Bud wouldn’t be the largest-selling beer in the world.
    I suspect that if strong ales were cheaper than Bud-like products, the young would drink markedly less because they wouldn’t have access to the cheap “gateway drug” that watery beer represents.

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  5. AG says:

    I drink far less now than when I was a poor college student, but between a job, kids and other life pressures I now savor the few opportunities I do have to have a beer far more… which means I’m willing to spend a bit more on a quality beer even though I drink far less. In fact, the volume difference is so significant that I would estimate my total spending on beer is 10% of what it was when I made far less money.

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  6. Steve says:

    PBR Pfffffffftttttttt!

    Give me a Pigs Ass Porter any day.

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  7. Alex F says:

    I think your math is wrong.

    Let expenditures = quality (in $ units) * quantity, and say that the income elasticity of expenditures is (trivially) 1.

    It does not hold that (elasticity of quantity (elasticity of quality >1). I’m not sure what the model in your head is — that elasticities should average to 1? That they should multiply to 1?

    Anyway, the correct result is that elasticities *sum* to 1. So no, not only is it not true that the income elasticity for quality must be greater than 1, it actually must also be less than 1 (as long as quantity isn’t declining, ie, the elasticity is nonnegative).

    Think about it this way: If the elasticity of quantity is 0, then the elasticity of quality would have to be 1. If you’re spending twice as much on cars and you’re only buying one car, then you aren’t spending *more* than twice as much per car, you’re spending exactly twice as much per car.

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  8. RubyTues says:

    While we are all stuck with the same number of hours in a day, wealth allows you to choose what to do with them. If I had more money I would have a maid and yard service which would certainly buy me more time.

    That being said, I’m not convinced that incomes are going up. Maybe at a macro level but I don’t think that “we the people” are walking around with more disposable income these days.

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