National economics influence on buying behaviour

Generally when national economy (GDP) is growing, or better yet booming, so is people’s consumption. Unemployment decreases, wages rise and people have more money to spend. Usually this money is used to extra consumption which influences positively to peoples buying behavior by increasing the demand of products. People buy more easily new cars, electronics, travels, restaurant services, healthier food and luxury products. However the last big depression in economy have left it’s mark on consumers buying behavior and they tend to save part of the extra money for a rainy day because wise consumer knows that the boom can’t last for ever. The increase in demand usually rises the product prices which speeds up inflation. When labor is scarce wages rise and therefore companies have to rise product prices. Now that we are in European Union we can’t control the inflation rate by setting our own currency rate or interest rates which are given by European Central Bank. State  tries to control consumption and the speed of inflation for example by rising taxes. In other words state tries to restrain consumers buying behavior so that the rise in price of products don’t get out of hand. Low inflation indicates lower interest rates and steadier growth than high inflation which eats the value of money and makes the economy unstable because productivity and therefore wages can’t rise for ever with prices. The bubble will burst sooner or later. The boom usually favoures people who work in the high wage industries because they usually work in fields where labor is scarce and can therefore negotiate better rise in wages. So their buying power increases. The lower wage industries may get lower rise in wages so that real influence in buying power is close to zero. This living standard gap has widen in recent years between the richer and the poorer. Although we had a boom the poorer couldn’t enjoy it the same way than the richer people.

Well, at the moment the hole western Europe, and more or less the western world, is in recession or in  the worst cases in depression. Demand of products have decreased, exports doesn’t pull, productivity decreases, unemployment and therefore social payments increases, states foreign loan increases. People, especially the poor and the lower middle-class, don’t have money to keep up the same consumption as in boom because of lay offs etc. They watch more closely the price of  what they buy from grocery store. They don’t go out to restaurants so often anymore. They postpone the buying of a new car. This doesn’t concern the rich because they have made and kept their money from the boom so the demand of luxury products don’t usually decrease in recession or their buying behaviour. As mentioned before state can’t influence on interest, currency or inflation rate which are low already at the moment. The only thing that state can do is to lower taxes to increase the amount of money people get and try to that way increase demand. But this would decrease the amount of money that state gets to keep the society going and would lead to more foreign lending. Employers and employees are negotiating at the moment of wage rises and employers are trying to make a zero percent deal so that the wages aren’t risen. This would furthermore decrease buying power because of the inflation. Employees are trying to get raise in wages and decrease in income tax so that the buying power would stay about the as now because for example our food prices have risen. And there has been a lot of talk and some action about the decrease of wages in western economies because of our higher production costs compared to developing countries. This would furthermore decrease consumers buying power and effect decreasingly buying behavior because I really don’t think that producers would decrease product prices due to that. History shows that prices have risen in the long run. Companies would just make bigger profits, that’s it.

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5 Responses to National economics influence on buying behaviour

  1. Bill Hubert says:

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