Responding to changes in consumer preferences (dynamic efficiency) However, in today’s society, consumer sovereignty is not absolute, firms spend a lot of money on marketing campaigns that are designed to manipulate consumer-spending behavior. E. G. Advertising campaigns. Firms often undertake misleading or deceptive advertising – designed to distort purchasing decisions. Planned obsolescence ? sometimes technology exists that would result in future purchases of products, e.
G. Light bulbs, that don’t burn out, pantyhose that don’t run.However it is not in the interest of the business to sell these products. Anti-competitive behavior Sometimes there are very limited competitors for consumers to choose from – again diminishing consumer sovereignty. Patterns of spending 1 .
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Y=C+S Consumption it part of income that’s not saved Savings is income not spent Consumption is consumer spending on goods and services for satisfaction of immediate wants ? durable or non-durable. For any given level of income (Y) If there is an increase in consumption, there will be a fall in savings If increase in savings, fall In consumptionBut as income increases, the proportion that is spent on consumption ends to fall, and the proportion that us saved tends to rise. Low income households tend to consume a higher proportion of their income than high income households – Low-income households have a higher MAC – High-income households have a low MSP High-income households have lower Mac and higher MSP than Iow- income households When looking at economies as a whole: Developing economies that are characterized by lower incomes ? tend to have higher consumption rates and lower savings rates.This of course means that less investment in capital goods and therefore lower level of economic Roth in the future – These economies are often dependent on foreign aid to finance investment needs e.
G. Chad, Sudan, and Niger Advanced economies are characterized by high levels of income – they lead to have higher savings rates and lower MAC. This means they have money available for investment in capital goods. D Capital accumulation which enables future economic growth and rising income as economy increases future production capacity. E. G.
Germany and Canada Impact on income on spending and savings decisions in an economyOther factors that impact spending and saving decisions in an economy. C] Life cycle factor consumption hypothesis This states that income levels after the course of a persons life will peak during the persons ass-ass, a young persons consumption funded by savings. During man earning years there will be a period of savings where Y in later years there will be a period of dissuading again – living on past savings e. G. Superannuation.
Other factors include: Culture Personal preference Employment vs.. Unemployment The Factors that influence individual consumer choiceLevel of disposable income yes-T=Hyde Y falls , APPC/Mac rise As Y increases, consumption increases As Y increases, demand for goods and services increases (True for normal goods) but demand for inferior goods may fall, e.
G. Generic food, grocery items The price of the good/ service Consumer demand tends to have an inverse relationship with price, (which means as price rises, demand falls and as price falls, demand rises) There are however exceptions, e. G. Necessities and luxuries Prices of other goods Substitute goods (substitute switch) ? there are alternatives, so if p rises,