What do you think are contributing factors affecting the power of purchasing goods or service? List some
Answers
Answer:
The consumer goods sector includes a wide range of retail products purchased by consumers, from staples such as food and clothing to luxury items such as jewelry and electronics. While overall demand for food is not likely to fluctuate wildly—although the specific foods consumers purchase can vary significantly under different economic conditions—the level of consumer spending on more optional purchases, sest rates, and consumer confidence.
How Employment and Wages Affect Consumer Goods Demand
One of the main onomic leading indicator that gives clues to demand for consumer goods.
The level of wages also affects consumer spending. If wages are steadily rising, consumers generally have more discretionary income to spend. If wages are stagnant or falling, demand for optional consumer goods is likely to fall. Median income is one of the best indicators of the condition of wages for American workers.
Prices and Interest Rates
Prices, affected by the rate of inflation, naturally impact consumer spending on goods significantly. This is one reason the producer price index (PPI) and the consumer price index (CPI) are considered leading economic indicators. Higher inflation rates erode purchasing power, making it less likely that consumers have excess income to spend after covering basic expenses such as food and housing. Higher price tags on consumer goods also deter spending.
Interest rates can also impact the level of spending on consumer goods substantially. Many higher-end consumer goods, such as automobiles or jewelry, are often purchased by consumers on credit. Higher interest rates make such purchases substantially more expensive and therefore deter these expenditures. Higher interest rates generally mean tighter credit as well, making it more difficult for consumers to obtain the necessary financing for major purchases such as new cars. Consumers often postpone purchasing luxury items until more favorable credit terms are 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 purchase greater amounts of consumer goods when they feel confident about both the overall condition of the economy and about their personal financial future. High levels of consumer confidence can especially affect consumers' inclination to make major purchases and to use credit to make purchases.
Overall, demand for consumer goods increases when the economy producing the goods is growing. An economy showing good overall growth and continuing prospects for steady growth is usually accompanied by corresponding growth in the demand for goods and services.
The Effect of the Invisible Hand
Consumers participate in, help guide and are ultimately some of the benefactors of the invisible hand of the market. Through competition for scarce resources, consumers indirectly inform producers about what goods and services to provide and in what quantity they should be provided. As a result of their collective demands, preferences, and spending, consumers tend to receive cheaper, better and more goods and services over time, with all else being equal.
What Is the Invisible Hand of the Market?
In economics, the term "invisible hand" is used to describe the mechanisms that lead to spontaneous social benefits in a free market economy. These processes are "spontaneous" in the sense that they take place without dictate from a central authority, such as the government. The term was taken from a line in Adam Smith's famous book, An Inquiry into the Nature and Causes of the Wealth of Nations.1
Professor Karen Vaughn of George Mason University described the impact of the invisible hand this way: "The invisible hand was Smith's metaphor for describing the mutually beneficial aspect of trade in an exchange economy that emerged as the unplanned consequences of the prosecution of individual plans."
Milton Friedman, an American economist, and professor at the University of Chicago during the second half of the 20th century provided perhaps the best-known description of the role of the invisible hand. Friedman noted that it was "cooperation without coercion" and individual people, guided by their own self-interest, are guided to promote the general welfare of society at large, which was not part of their intention.23
Much of the spontaneous order—and many of the benefits—of the market arise from different producers and consumers wanting to engage in mutually beneficial trades. Since all voluntary economic exchanges require each party to believe it benefits in some way, even psychologically, and because every consumer and producer has competitors to contend with, the overall standard of living is raised throu