Fascinating economy

Cultural Influences

Producers and consumers influence each other. But the choices made by consumers and producers are also affected by other factors. Culture plays a significant role in economic decisions.

In most societies, the goods and services produced help distinguish one culture from another. Things like food, art, sports, clothing, and literature differ between cultures. Consumers are influenced by their own cultural values and traditions. These traditions influence consumers to buy certain kinds of goods and services. They also have an effect on what producers make.

Producers have to be very conscious of what consumers are going to buy, and many consumer decisions are influenced by cultural values. For instance, many cultures value sports. In the U.S., sports such as baseball, football, and basketball are valued very highly. In Europe and Latin America, soccer plays an important cultural role; in some countries, people are even allowed to take time off work to watch a big game or the World Cup. Sports fans all over the world spend millions of dollars every year on tickets and merchandise, but which sports are valued – and therefore potentially valuable to producers – depends on the culture.

Holidays are another important cultural feature. Thanksgiving is a big holiday in the U.S. People travel by air, car, and train to spend time with their families and eat a special meal. In countries such as Iraq, Lebanon, and Jordan, Eid is a very important holiday. Parents buy their children new clothes, shoes, and toys during Eid, which takes place during three days at the end of Ramadan. They also prepare and share special dishes and take time to visit with family and friends.

In Asian countries such as China, Korea, and Vietnam, the Lunar New Year is the most important holiday of the year. In China, for example, the festivities begin on the first full moon of the year and can last for up to 25 days. The New Year is a time of renewal. Families spend time together eating rich foods and paying respect to ancestors and elders.

Different holidays lead to different consumption decisions, and these consumption decisions affect producers. A producer in China is not going to be very successful trying to sell turkeys in November, but a producer in the U.S. would be wise to go into the turkey business around Thanksgiving.

Peer Pressure

Consumers do not always buy goods and services because of a need or a want. Sometimes consumers make purchases because they feel pressured. Sometimes people buy products simply because others are. This is known as peer pressure.

Peer pressure influences consumer behavior, and it does not just apply to young people. People of all ages feel peer pressure. For example, an adult might feel pressure to buy a luxury car, a boat, or some other expensive item simply because that is what other successful adults do.

Because peer pressure can convince consumers to buy things they might not otherwise purchase, producers like it. Producers cannot control peer pressure, but often try to start a trend in the hopes of creating peer pressure. Producers try to anticipate what the next trend will be, especially during a holiday season like Christmas. They can make a lot of money if they produce the right product at the right time.

Scarce Resources and the Environment

The decisions made by consumers and producers are also affected by the availability of resources. Today, many resources are becoming scarce at the same time that the needs and wants of consumers are increasing. Meeting those needs and wants is a big challenge for any society.

Goods and services can become scarce as a result of limited availability of natural resources. Environmental changes can also lead to scarcity. For example, farmers who experience drought or floods might lose their crops – an important resource. Big cities can lose electricity, another kind of resource, during heat waves.

A Game of Influences

In economics, the players all make free choices, but these free choices are not completely free from influence. Consumers and producers influence each other with the decisions they make. Culture, peer pressure, price, and environmental changes also affect these decisions.

View A Game of Influences, and match each economic situation listed in the left column with the type of influence it corresponds to in the right column.

Over the years, the quantity and variety of goods and services available to consumers has greatly increased. Consumers have many more choices today than ever before.

On one hand, this makes consumers’ choices easier because they can usually find something that they want to buy. However, at the same time it also makes consumer decisions harder. With so many choices, consumers have to sift through many options to find the one that suits them. This takes time and energy.

Consumers use different decision-making methods based on personal values and outside influences. To understand how consumers, participate in economics, we need to understand how they make decisions and what factors influence these decisions.

Over the years, the quantity and variety of goods and services available to consumers has greatly increased. Consumers have many more choices today than ever before.

On one hand, this makes consumers’ choices easier because they can usually find something that they want to buy. However, at the same time it also makes consumer decisions harder. With so many choices, consumers have to sift through many options to find the one that suits them. This takes time and energy.

Consumers use different decision-making methods based on personal values and outside influences. To understand how consumers, participate in economics, we need to understand how they make decisions and what factors influence these decisions.

Like everyone else, you make decisions every day. But do your decisions always make sense? You certainly hope so. When it comes to buying, we all try to use rational choice before we make a decision.

When consumers make a purchase, they try to make rational, or wise, decisions. Often, economic decisions are made after thinking about price, quantity, need, and sacrifice. But sometimes economic decisions are irrational, or unwise. Irrational economic decisions can lead to trouble.

Like everyone else, you make decisions every day. But do your decisions always make sense? You certainly hope so. When it comes to buying, we all try to use rational choice before we make a decision.

When consumers make a purchase, they try to make rational, or wise, decisions. Often, economic decisions are made after thinking about price, quantity, need, and sacrifice. But sometimes economic decisions are irrational, or unwise. Irrational economic decisions can lead to trouble.

Cost-Benefit Analysis

To make rational choices, we need lots of information. In fact, making wise decisions usually involves cost-benefit analysis. A rational choice will seek to maximize benefits while minimizing costs. Costs and benefits differ from one consumer to the next, so each person’s rational choice will be different as well.

It is Your Call

Think, for example, of trying to make a wise decision about which cell provider to use. One company offers 5,000 minutes for $50. Another gives 2,000 minutes for $45. The extra benefit is 3,000 more minutes for a cost of only $5. It seems like a good deal, right? If you regularly use 3,000 minutes per month, it is a good deal. But what if you never use more than 1,500 minutes per month? There is no need to pay for extra minutes if you will never use them.

By using information about the two plans and your own needs, you would be able to make a cost-benefit analysis and come up with a rational decision.

Financial Planning

Cost-benefit analysis is helpful when it comes to making decisions, but it is not the only tool used by consumers. Consuming usually involves money, and most of us need to plan ahead and keep track of our money to make sure there is enough when we need it. This involves financial planning, which is the creation of a strategy to pay for necessities and save for future goals.

Give Me a Break

Imagine that you have saved some money and now you are ready to choose how to spend it. Some of your friends are planning to go to the beach on the weekend. You would like to join them, but if you spend your money on a day at the beach, you will not have any left. Do you need or want that money for something else? A financial plan can help you answer the second question.

As with rational choice, financial planning requires information and an understanding of your financial goals. Financial planning is another form of rational choice. You decide whether the benefits of a purchase now are worth the cost of not having the money for a different purchase later.

The Benefits of a Budget

One tool that some consumers use to help with financial planning is a budget. A budget allows a person to control how much money is coming in and how much is going out.

The main idea behind a budget is to have enough money to pay for the thing you want and need. A consumer with a budget knows whether he or she can afford to go on a beach vacation without spending money needed for rent or bills. A budget can also help consumers reach their financial goals. A budget can help you save for the future by keeping your expenses below your income. This leads to savings now for spending later.

Top Five Benefits of a Personal Budget

Know how much money you are making.

Know how much money you are spending.

Know how much money you are saving.

Plan for future expenses.

Plan for future savings.

Fixed and Flexible Expenses

Expenses are part of life. A budget helps monitor and control them.

There are two main types of expenses: fixed expenses and flexible expenses. Fixed expenses, such as rent, a car payment, or tuition, are necessary and generally do not change from month to month. Flexible expenses, such as buying video games, paying for car repairs, or purchasing new clothes, are non-necessary or unplanned spending. Sometimes, flexible expenses can be adjusted or eliminated. At other times, however, they cannot be avoided.

Fixed expenses must be taken into account in a budget, because they rarely change and usually cannot be eliminated. Once the fixed expenses are paid for, there may or may not be much left for flexible expenses.