What economic factors affect the demand for consumer goods?


In the consumer goods sector includes a wide range of retail products purchased by consumers from products such as food and clothing luxury goods, such as jewelry and electronics. While total demand for food may not fluctuate so much, although the specific products that consumers purchase may differ substantially under different conditions – the level of consumer spending for a few additional purchases, such as cars and electronics, varies greatly depending on a number of economic factors. Economic factors affecting the demand for consumer goods in the field of employment, wages, prices/inflation, interest rates and consumer prices.

How employment and wages affect consumer demand

One of the main factors affecting the demand for consumer goods is the level of employment. The more people receive a stable income and expecting to continue to get one, the more people are there to make a discretionary spending purchase. Thus, the monthly report, the unemployment rate is one of the leading economic indicators, which gives hints of the demand for consumer goods.

The wage level is also affecting consumer spending. If wages are constantly increasing, consumers usually have more available funds to spend. If wages remain stagnant or falling, the demand for additional consumer goods is likely to fall. The average income is one of the best indicators of the status of wages for American workers. (For associated reading, see: what is the average income in the US?)

Prices and interest rates

Rates, affects the level of inflation, of course, the impact of consumer spending on goods much. This is one of the reasons that the producer price index (PPI) and consumer price index (CPI) is considered the leading economic indicators. Higher inflation undermines purchasing power, making it less likely that consumers have surplus income remaining after covering basic expenses such as food and housing. Higher price tags for consumer goods and cost containment.

Interest rates also can affect the level of expenditures significantly for consumer goods. Many of the more expensive consumer goods, such as cars or jewelry, often purchased by consumers on credit. Higher interest rates make such purchases much more expensive, and so to restrain these costs. Higher interest rates usually mean tighter credit, as well as making it more difficult for consumers to obtain the necessary financing for major purchases such as new cars. Consumers often postpone the purchase of luxury goods to more favorable credit terms available.

Consumer Confidence

Consumer confidence is another important factor affecting the demand for consumer goods. Regardless of their current financial situation, consumers are more likely to buy more consumer goods when they feel confident not only the General state of the economy and their personal financial future. A high level of consumer confidence is especially likely to affect the propensity of consumers to make major purchases and use the credit to make purchases.

In General, the demand for consumer goods increases when the economy is producing goods is increasing. The economy shows good growth and continuing prospects for sustainable growth, usually accompanied by a corresponding growth in demand for goods and services. (For associated reading, see: what factors affect the performance of the Packed consumer goods?)

The effect of the invisible hand

Consumers to participate in the management and ultimately some of the benefactors of the invisible hand of the market. Due to competition for scarce resources, consumers indirectly inform producers about what goods and services are provided and in what quantity they should be provided. As a result of their collective demands, preferences and spending, consumers typically get cheaper, better and more goods and services over time, ceteris paribus.

What is the invisible hand of the market?

In Economics, the term “invisible hand” is used to describe mechanisms that lead to spontaneous social benefits in a free market economy. These processes are “spontaneous” in the sense that they occur without the dictates of the Central government such as the government. This term was taken from a line in the famous book of Adam Smith “an inquiry into the nature and causes of the wealth of Nations.”

Professor Karen Vaughn of Georgetown University described the influence of the invisible hand this way: “the invisible hand was Smith’s metaphor for describing the mutually beneficial trade exchange in the market economy, has arisen for the unintended consequences of the pursuit of individual plans.”

Milton Friedman, American economist, Professor of the University of Chicago in the second half of the 20th century, represents what is perhaps the most famous description of the role of the invisible hand. Friedman noted that “cooperation without coercion” and separate people according to their interests, aimed at improving the General welfare of society as a whole, which was not in their intentions.

A large part of spontaneous order – and many of the benefits of the market arise from various producers and consumers wishing to carry out mutually beneficial transactions. After all voluntary economic exchanges require each participant to believe that benefits in some way, even psychologically, because every consumer and producer has competitors to contend with, overall quality of life is enhanced through the implementation of individual interests.

Consumers and the invisible hand

There are two main mechanisms by which consumers are influenced – and influence – the invisible hand. The first mechanism runs through tendering of various goods and services. The decisions about what to buy and what not to buy, and at what price these exchanges are acceptable, consumers Express value for manufacturers. Then the producers are competing with each other to organize resources and capital in such a way to provide those goods and services to consumers for profit. Limited resources in the economy are constantly rearranged and redeployed for maximum efficiency.

The second important effect comes through the risk of discovery and innovation that occur as competitors are constantly looking for ways to increase their productive capital. The productivity enhancement naturally deflationary, which means consumers can purchase more goods for fewer currency units. This has the effect of raising living standards, giving consumers more wealth even if their incomes remain the same.

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