What are determinants of consumption in society?
- The level of disposable income. income which is available to individuals and households after taxation. When this income is high then consumption levels are high and vice versa.
- Sales Effort: Advertising and various sales efforts of producers of consumer goods are considered as a means for increasing consumer demand. It is quite likely that an increase or decrease in the amount of sales effort may lead to a greater or lower demand for consumer goods.
- Terms of Consumer Credit: The hire- purchase system of buying durable consumer goods has become popular in these days. Where goods are bought on hire-purchase system, consumer credit on reasonable terms, increases consumption.
- The nature of income distribution. Fair distribution of income increase aggregate demand for goods and services
- Durability of goods. Generally durable goods are consumed when the economy is strong and improving.
- The degree of speculation. When individuals anticipate price change. When customers speculate price increase or increase in income, they will increase the current level of consumption and speculating a fall in price will reduce current consumption
- The marginal propensity to save (MPS). The more an individual save, the less he/she consume.
- Government fiscal policy. Through taxation government discourages consumption of harmful products such as alcohol, luxuries such as posh vehicles and increases the consumptions of basic products such as solar energy through subsidization
- The interest rate. When the interest rate is high, savings tend to increase and this leads to reduction in consumption and increase when interest rate is low.
- The level of consumption. When there is a tendency to save for other functions like school fees, retirement age, the current consumption tend to decrease
- Demonstration effect. Consumption patterns tend to change or increase when people have the tendency of copying what others do i.e. a person may consume a product because his neighbour is consuming it
- Time for income reception. Quite often consumption is high for those who receive regular income and low for those with low or no income at all.
- Number of Buyers in the Market. The number of consumers plays a vital role in net/total demands. When the number increases, the demand also increases.
- Price of the Product. Price is used as a parameter by the people to decide if all the other factors remain constant or equal. According to the law of demand, the decrease in the demand follows an increase in the price and an increase in the demand follows a reduction in price.
CATEGORIES Economics
TAGS Dr. Bbosa Science
Monopoly; is a market situation where there is one producer or supplier of a product which has no clos substitutes and entry into the market is highly blocked.
examples ‘leakage’; saving’ consumption ‘taxation ‘import and capital out flows.
examples’ injection’ ;investment’ consumption’ government expenditure’ export ‘ capital inflow