AS INCOME RISES, CONSUMPTION RISES, BUT NOT AS QUICKLY

AVERAGE PROPENSITY TO CONSUME PERCENTAGE OF DI SPENT PERCENTAGE OF DI SAVED

APC? % IS SPENT TO SERVICES & GOODS APS? % OF HIS INCOME GOES TO HIS SAVINGS APC + APS = 1 DISPOSABLE INCOMESAVING 80, 0005,000

IS IT POSSIBLE TO HAVE AN APC GREATER THAN 1? WHAT DOES 1 SUGGEST? – YOU SPEND BEYOND YOUR MEANS. YOU SPEND MORE THAN YOUR INCOME – NO SAVINGS! DISPOSABLE INCOMECONSUMPTION 25,00029,000

YEARDISPOSABLE INCOMECONSUMPTION ,00010, , 00014, 000 AS INCOME RISES, CONSUMPTION RISES (BUT BY LESS THAN DOES INCOME)C 4,000 / 3,000 = 1.33 MPC?

YEARDISPOSABLE INCOMECONSUMPTION ,00010, , 00014, 000 AS INCOME RISES, BOTH CONSUMPTION AND SAVING WILL RISE SOLVE FOR SAVINGS FIRST: 8,000 -7,000 = 1,000 MPS? 1,000/ 3,000 =.33

SIGNIFICANCE OF “C” CROSSING THE 45* LINE? CONSUMPTION < DI MPC? = DI IS FROM 6 TO 8 DI = FROM 6 8 C? /2 = 0.75 CONSUMPTION SCHEDULE CONSUMPTION > DI

SAVING FUNCTION INCOME BELOW 4? = DISSAVING DISSAVING = SAVING BELOW 0 DI = C + SDI – S = CDI – C = S FIND C & S IF DISPOSABLE INCOME IS 2 C= 2.5S= -.5

AUTONOMOUS CONSUMPTION ? LEVEL OF CONSUMPTION WHEN DISPOSABLE INCOME IS 0 PEOPLE WILL SPEND A CERTAIN AMOUNT ON THE NECESSITIES OF LIFE EVEN WITHOUT INCOME

INDUCED CONSUMPTION ? INDUCED = INFLUENCE/ PERSUADE CAN A DISPOSABLE INCOME OF 0 INDUCE CONSUMPTION? AS DISPOSABLE INCOME RISES, INDUCE CONSUMPTION ALSO RISES AS DISPOSABLE INCOME FALLS, INDUCE CONSUMPTION ALSO FALLS CONSUMPTION = AUTONOMOUS CONSUMPTION + INDUCED CONSUMPTION C = AC + ICC – AC = ICC - IC = AC

AUTONOMOUS CONSUMPTION ? INDEPENDENT OF DISPOSABLE INCOME LEVEL OF CONSUMPTION WHEN DISPOSABLE INCOME IS 0 AUTONOMOUS CONSUMPTION IS 40 INDUCED CONSUMPTION IC? IF 360 IS C C = AC + IC IC = 320

3 CATEGORIES OF CONSUMPTION

Things that last a while – at least 3 years

THINGS THAT DON’T LAST LONG NONDURABLES

SERVICES set of actions that are performed to provide a set of outcomes for consumer’s satisfaction INTANGIBLE

DETERMINANTS OF THE LEVEL OF CONSUMPTION 1)DISPOSABLE INCOME 2)CREDIT AVAILABILITY 3)STOCK OF LIQUID ASSETS IN THE HANDS OF THE CONSUMERS 4)STOCK OF DURABLE GOODS IN THE HANDS OF CONSUMERS 5)KEEPING UP WITH THE JONESES 6)CONSUMER EXPECTATIONS

Level of DI largely determines the level of C

AT VERY LOW INCOME LEVELS, PEOPLE ACTUALLY DISSAVE PRICE OF CONSUMPTION YOUR DAILY NEEDS DON’T CHANGE TO MEET YOUR DAILY NEEDS, YOU BORROW CREDIT OR YOU’LL GO TO YOUR SAVINGS

LENDER: (CREDO/ BELIEVES) LENDS RESOURCES ENTRUSTING: LATER PAYMENTS DEBTOR: BORROWER CREDIT AVAILABILITY: WHEN CREDIT IS EASED, PEOPLE TEND TO BORROW MORE CREDIT AVAILABILITY VARIES INVERSELY WITH THE LEVEL OF CONSUMER DEBT. THE MORE YOU OWE, THE LESS CREDIT AVAILABLE

STOCK OF LIQUID ASSETS IN THE HANDS OF THE CONSUMERS OWNED THINGS THAT CAN BE QUICKLY TURNED INTO CASH

33 million shares of facebook’s stock and the price of the stock rises to 35? 1.15 billion richer at least on paper Brokers will encourage you to invest your money on other shares WOLF OF WALLSTREET: COMMISSION ON EACH INVESTOR THEY GET

SALES OF DURABLE GOODS VARY INVERSELY WITH THE STOCK OF CONSUMER DURABLES IN THE HANDS OF THE CONSUMERS WHEN PEOPLE HOLD A LARGE STOCK OF CONSUMER DURABLES, CONSUMER DURABLE SALES TEND TO BE LOW

1999 = 3210 costs P10, 000 SIM CARD COSTS P 1,000

AFTER 15 YEARS = NOKIA LUMIA COSTS P7, 900 AFTER 15 YEARS = MY PHONE AGUA COSTS P2, 988 WHEN PEOPLE HOLD A LARGE STOCK OF CONSUMER DURABLES, CONSUMER DURABLE SALES TEND TO BE LOW

CONSPICUOUS STANDING OUT SO AS TO BE CLEARLY VISIBLE

KEEPING UP WITH THE JONESES IF WE DON’T BUY IT, WE WON’T BE KEEPING UP

KEEPING UP WITH THE JONESES

CONSUMER EXPECTATION WHEN INFLATION IS EXPECTED, PEOPLE BUY MORE WHEN RECESSION IS EXPECTED, PEOPLE BUY LESS

ESTIMATING FUTURE EARNINGS UNTIL ONE RETIRES PERMANENT INCOME HYPOTHESIS PEOPLE GEAR THEIR CONSUMPTION TO THEIR EXPECTED EARNINGS MORE THAN TO THEIR CURRENT INCOME Income is greater than consumption during the middle ages (30-50)

496 X 2 = 992, , 000 – 496, 000 = 496, 000 (REMAINING BALANCE)

10, 522 X 60 MONTHS 631, 320 – 496, , 000 INTEREST HOW CERTAIN ARE YOU THAT YOU WILL NOT INCUR OTHER ADDITIONAL/ EMERGENCY EXPENSES WITHING THE NEXT 5 YEARS?