South-Western College Publishing - Economics  
In America now, everyone's a millionaire...sort of.
Subject weak US dollar has helped people buy goods previously unattainable
Topic International Trade; Utility and Consumer Choice
Key Words

luxury goods; dollar; demand; baby-boomers

News Story

While Wal-Mart and other mass retailers have struggled this holiday season, the high-end luxury market has flourished. Bergdorf Goodman's, Nieman-Marcus, Nordstrom's and a variety of high-end boutique retailers are seeing huge sales increases this season.

Part of the increase in luxury goods purchases comes from foreign travelers. Given the continued decline in the value of the dollar, foreign nationals shopping in the U.S. are seeing huge bargains. Three Burberry shirts that now cost $200 in Manhattan would have sold for three times that in London.

Part of the increase in luxury good sales also results from the vast array of such goods now on the market. Sunglasses for $200, face cream for $50, handbags for $400; the price doesn't matter as long as the name brand is there. And the name-brand manufacturers are willingly supplying those goods. Rather than buying a $5,000 Pucci print suit, consumers can buy the $200 Pucci printed hat; instead of the $3,000 for a Louis Vuitton bag, consumers can buy the $300 Coach handbag.

Finally, a variety of U.S. consumers' incomes are rising. Retirees are beginning to spend their retirement funds, swelled from the big increases in asset value in the 80s and 90s. Individuals are receiving larger and large inheritances, as the baby boomer generation begins to die.

(Updated February, 2005)

Questions
1.

What happens to an individual's budget line as s/he receives a large inheritance? Show this on a budget line with luxury goods on the horizontal axis, and all other goods on the vertical axis.

2. Use a graph of supply and demand to illustrate the effect of a weakening dollar on demand for goods.
3. Consider a foreign individual shopping in the US. What happens to that individual's budget line as the US dollar continues its decline? Show this on a budget line with luxury goods on the horizontal axis, and all other goods on the vertical axis.
Source Tracie Rozhon. "Luxury market thrives in holiday season," The New York Times Online. 12 December 2004.

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