TRENDS IN CONSUMPTION PATTERNS

Trends in Consumption Patterns

Trends in Consumption Patterns

Define Economics

Formal economics focuses on economic behavior and individual psychology in a market setting. Formal economics begins with choices of individuals acting as economic agents. Production, distribution, and consumption are considered as connected to calculations of costs versus benefits. Even under a fully developed capitalist system, many decisions are imposed by external concerns dictated by the effects of a market economy and not a matter of personal choice(Chayanov, 1986).

Define Microeconomics

Microeconomics studies economic phenomena at a microlevel, that is, at the individual level. A systematic study of choice-making behavior of consumers and producers (individuals, households, firms, and government), allocation of resources (land, labor, and capital) between goods and services that are produced and consumed, and determination of their prices make up the central theme of microeconomics (Pindyck, 2005).

Law of Supply and Demand

Supply-side economics is as much about monetary policy, as it is about fiscal policy with the classical principle that a monetary policy favoring price stability and low inflation is important in providing the positive conditions for planning in credit markets, labor markets, and wherever else monetary contracts are important (Evans, 2006).

To understand the supply-side revolution, it is necessary to examine the state of affairs that existed beforehand, both in theory and in policy. The term supply-side economics was created by Jude Wanniski in 1975 to give currency to a growing tide of discontent and its alternatives to the demand-side economics produced by the predominant Keynesian economics of the day. The events leading up to this time are crucial in understanding the opportunity of reinventing classical economics (Acton, 2005). The oil crises that shocked the U.S. economy, as well as others, led to recession and high inflation in 1974 and into 1975. The mounting importance of government presence in the economy through welfare, entitlements, and other redistributions of income financed through higher taxes indicated a creeping socialist state and its accompanying malaise. This, along with the growing influence of monetarism, led to the foundation of supply-side economics. It was this environment that produced supply-side economics (Corrigan, 2007).

Each good and service has its own characteristics that determine the quantity consumers are willing and able to buy. The most important influence over how much of a good or service consumers will buy is its price. Other important determinants include prices of related goods and services, income, consumer preferences, and demographic characteristics (Chayanov, 1986).

Factors Influencing Consumption

An obvious question that might arise is, “How are social values of different outputs and inputs established?” After all, consumers are unlikely to have identical tastes and preferences, while workers, landowners, and other suppliers of inputs are likely to differ in their skill levels and other endowments. Hence, members of society will differ in their individual valuations of the many different outputs and inputs that characterize economies (Pindyck, 2005).

In capitalist economies, the forces of supply and demand establish the values of outputs and inputs. Specifically, market-clearing prices, that is, prices that equate supply and demand, ordinarily serve as measures ...