Factors Influencing Consumer Behavior in the Economy

In this article you will learn about Factors Influencing Consumer Behavior in the Economy.

When it comes to economic factors, we’re talking about things like market sales volume and consumer wealth, or the amount of money an individual spends on the products and services that make up the company’s overall revenue.

Consumers’ purchasing decisions are influenced by the following economic factors:

Factors Influencing Consumer Behavior in the Economy
Factors Influencing Consumer Behavior in the Economy

1. Individual Earnings

One’s personal income has a significant impact on his or her shopping habits because it establishes the ceiling on how much money can be spent on purchases. Both the consumer’s disposable and discretionary personal income are divided into two categories.

After all taxes and other necessary payments have been made, a person’s “disposable income” is what’s left over. Spending on various items rises in direct proportion to available personal income, and vice versa.

All of a person’s basic needs have been met and the remaining funds are used to buy luxuries, necessities, and long-term investments. More money for shopping means a higher standard of living for the individual, so an increase in discretionary income is a good thing.

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2. Family Income

The total income of all family members is referred to as the family income. The purchasing habits of its members are also influenced by the total family income. After meeting all of one’s basic needs, the money left over can be spent on shopping, luxury items, long-lasting items, and so on.

3. Expected earnings

A person’s present-day purchasing decisions are influenced by his or her expectations for future income. If a person’s income is expected to rise in the future, he or she is more likely to spend money on luxury items, durables, and retail purchases. When he expects his income to decrease in the future, he reduces his spending on these items.

4. Credit facility

Customers’ purchasing decisions are also influenced by the amount of credit they have available to them. It is likely that customers will increase their expenditures on luxuries, durable goods, and shopping items if the terms of credit and the EMI scheme are flexible. Either directly or indirectly, the seller makes this credit available via banks and other financial institutions.

5. Liquid Assets

Liquid assets are also a factor in a consumer’s purchasing decisions. An asset’s liquidity is determined by how quickly it can be converted into cash. Luxurious goods and retail purchases are more likely to be made if the customer has more readily available liquid assets. On the other hand, if the amount of liquid assets is low, the amount of money spent on luxury goods decreases.

6. Savings

Consumers’ purchasing habits are also influenced by the amount of savings they make from their personal income. There are many examples of this, such as when the customer decides to save more money for a period of time, his spending on other items will decrease.

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7. Supply and Demand

The relationship between supply, demand, and prices is illustrated by the law of supply and demand. Prices rise as demand increases. As a result of this relationship, more suppliers are drawn to the market, which stabilizes prices and maintains healthy consumer demand levels. Consumer behavior is influenced by supply and demand; if a product is too expensive, less people will buy it.

8. Interest Rates

People are less likely to borrow money from banks to buy big-ticket items like a house or a car if interest rates are high. This affects consumer spending. A consumer’s purchasing power is determined by interest rates. In the case of an adjustable-rate mortgage, for example, an individual may no longer be able to afford the house if the interest rate rises.

9. Unemployment

A person’s spending power drops sharply when he or she lacks a regular source of income, which in turn influences their purchasing decisions. According to Trading Economics, the unemployment rate in the United States reached a record high of 10.80 percent in November 1982 between October and December 2009. There were also fewer home sales during this time due to the fact that fewer people could afford a mortgage.


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