Household Behavior and Demand Essay Example for Free

Household Behavior and Demand Essay Household behavior is one of the any basic concepts in economics which has an effect on market trends. Household demand, for instance, can be seen as related to consumer choices in terms of which products are mostly bought in the market and which products need more supplies in terms of item production and its corresponding allocation. One of the many essential features of household demand is its corresponding effect on what is being provided in the market and, more importantly, the quantities or stock that is being allocated in the market. It seems quite obvious that the quantities of certain products in the market—for instance, in a certain area or a certain supermarket—are patterned according to the existing demand and the foreseen demands a some point in the future, say within a frame of a few weeks time. Household behavior, for its effects on market trends to be realized and understood, must be taken from a general and collective standpoint since a single specific household behavior cannot entirely be taken into account as the precise and sole measure in determining the overall household behavior true for all o most instances with regard to market trends. For example, it has been observed that Chinese people rely largely on the prices of products in determining which ones are the best buys. Paul French notes that â€Å"for pragmatic Chinese shoppers, price remains the bottom-line† which translates to the idea that â€Å"win on price and you win† (French, 2007). Hence, in the context of Chinese households, producers of certain goods should greatly consider the fact that Chinese households will most likely prefer goods which are relatively lower in price as compared to other products in the market in order stay atop the competition. To be able to gain control of the price index of a certain product in the market means to be able to win the market competition if the Chinese household behavior is the primary basis to be used. The perception appears simple enough: household behavior determines household demand which, in consequence, affects a large portion of certain market trends. Thus, to analyze a specific market trend for a specific product entails the analysis and understanding of certain trends in household demand caused by household behavior. An existing household demand, say, for breakfast cereals can be looked upon the collective household behavior in terms of cereal consumption for the past six months for the locality of Chicago, for example. Given a relatively high consumption rate for breakfast cereals with the price not exceeding $4 per box among families, companies producing breakfast cereals may have the corresponding decision to pattern their product according to the existing demand. Although it may not essentially be the case that companies will sacrifice prices of their products in order to meet the demand for the value of the products, being able to adjust product prices in accordance to the existing market prices will most likely lead to favorable results on the part of the companies since market demand is met. Quite on the contrary, there are still other related factors which hinder the feat of lowering prices according to the budget and income of households which determine their capacity to buy and consume certain products. More recently, several instant-noodle corporations in China have difficulties in lowering the prices of their products due to escalating prices in wheat and other farm commodities (Zhu, 2007). With prices in instant-noodles—a popular product among individuals with meager budget—soaring, even the household demand or low-cost instant-noodles may hardly deter companies from lowering the prices of their goods just to meet the existing demand in the market. On the part of households, proper allocation of income can be one remedy in order to curb unnecessary spending so as to be able to allocate budget on goods which the households deem as a dire part of their income-spending. In this case, household behavior and demand appears to be patterned according to the existing market trends which is the opposite or reverse case of what has been provided earlier. Hence, it is also possible to have a household behavior or consumer choice that is based on existing market trends apart from the possibility that market trends may also be based on existing consumer choice and household behavior. Allocating income to maximize utility is one household behavior that determines consumer choice in the long run. For instance, there is the observation that â€Å"household expenditure patterns are affected by the share of household income accruing to women† (Hopkins, Levin, Haddad, 1994). Given this perception, the choices of consumers over a vast array of products competing in the market is not only affected by external elements determined by companies but also by internal elements sprouting from household consumption patterns of certain goods in relation to the household’s budget allocation. In terms of income and substitution effects, the changes in the prices of certain goods are proposed to alter the demands for such goods. Changes in relative prices as well as changes in the purchasing power of the money income can greatly alter the existing demands for, say, a breakfast cereal. Even if the prices for breakfast cereals remain the same for a given period, alterations in the income will result to an equal change in the budget constraint (Hamermesh, 1977). On the other hand, if the price of breakfast cereals changes, the budget constraint will change accordingly. One concrete way in further understanding the situation is that in order to maximize the utility with the decreased budget constraint, the household will tend to have shifts in their patterns of consumption. For instance, with the budget constraint arising from the decrease in the money’s purchasing power, households will tend to maximize the utility of money by increasing the segregation of purchases of goods based on low-cost preference. An example to this is when households purchase goods with relatively lower prices given a budget of $20 which results to more purchases of various goods while on the other hand households purchasing goods with relatively higher prices will result to lesser maximization of the utility or lesser goods purchased with the $20 budget. Hence, wage rates also share a crucial part in determining household behavior and demand as well as consumer choice. It has been seen that the rates of wages of certain groups of people have corresponding implications on the purchasing power of households. To arrive at the observation that the wage of a household is decreased corresponds to the observation that the purchasing capacity of the same household proportionally, if not significantly, decreases. A higher wage, then, will translate to a higher capacity to purchase goods in the market. In the larger scheme, a group of households with a high rate of wage will most likely have higher purchasing capacity thereby inducing the household behavior of increased spending assuming the household has lesser tendencies to save their income. In effect, a certain market demand will be conjured in such a way that a certain good, for instance, will experience an increase in demand which calls for a corresponding increase in goods being supplied. Thus, it can be noted that the overall rate in household demand will relatively increase given the increase in wages. On the other hand, interest rates may greatly alter or shift the persisting demand from households towards a certain good. For instance, a higher interest rates for purchased loans by households will certainly result to a higher real cost of purchase in the fulfillment of all payments made for the loan. It is quite apparent that an increase of 2% in interest rates from 4% to 6% will most certainly have a corresponding effect on the actual cost of the good purchased. For the most part, higher interest rates translate to higher cost of purchases, decreased household spending given a fixed rate of wages, and a lesser spending on other goods which result to a corresponding decrease in the demand for those other goods. The price of leisure also has a significant role in comprehending the patterns in household demand and consumer choices. For instance, higher prices in the cost of airplane travels would entail that the consumer will opt for the airline provider with the least cost. A decline in the preference for airlines with comparatively higher airline prices will most likely be felt assuming that a given set of consumers have fixed income. Budget constraints in an environment of increasing prices in leisure enable one to view the household demand for existing leisure. Indeed, it has been observed that several market trends can be viewed and analyzed using the perceptions on household behavior and demand for certain goods and products. The interrelationships existing between the market trend and the household behavior is clear although at some point several exceptions would have to be made. Essential to this understanding is the view that there may or may not be actual budget constraints and that prices of commodities may actually shift even without the presence of the shift such as a decline or incline in the demand from households. Nevertheless, there are many cases in which household behavior has its implications on the existing market trends. References French, P. (2007). When the Best Buy Is No Buy. The Wall Street Journal(August 7). Hamermesh, D. S. (1977). A Note on Income and Substitution Effects in Search Unemployment. The Economic Journal, 87(346), 312. Hopkins, J. , Levin, C. , Haddad, L. (1994). Womens Income and Household Expenditure Patterns: Gender or Flow? Evidence from Niger. American Journal of Agricultural Economics, 76(5), 1219. Zhu, E. (2007). Chinas Battle Against Inflation Puts Noodle Makers in Hot Water. The Wall Street Journal(August 29), B11.