Chapter 4

• Decisions to spend or save: when individuals have disosable income, they have to choice to save it or spend it
• Y = disposable income

  S = savings

  C = consumption that is needed

  Y = C+S
• C and S are inversely proportional
• The proportion of an individual's income spent on saving or consuming = APS or APC (AP stands for avg. propensity to (S/C)) This gives an overall description of behaviour of C to S
• If APS increases, then APC decreases
• APS + APC = 1
• C/Y = APC, S/Y = APS
• Usually, when income is higher, saving is higher since people have a higher proportion to spend after tey spent some of their income necessary bills/taxes
• Factors that can influence APC and APS (self-explanatory):

  1. Income levels and future expectations
  2. Cultural factors
  3. Confidence in employment position and future expectation
  4. Life stage and age distribution
  5. Government policies/intervention
  6. Availability of credit
• Marginal Propensity to consume (MPC) Marginal Propensity to save (MPS): proportion of extra dollars to income that is either S or C. This is supposed to mathematically represent the amount of savings to consumption in a decimal.
• MPC + MPS = 1
• $MPC =$$ΔConsumption/Δincome$ $MPS =$$ΔSavings/Δincome$
• Wealthier individuals/households have a higher MPS than MPC or higher APS than APC
• Superannuation: regular payment made into a fund by an employee to reinforce pension. These are used to increase a country's savings
• Age affects income as the three main periods of life:

  1. Schooling: when dis-savings are present due to loan taking
  2. Middle aged: when savings start to accumulate, however, this rate is decelerated due to having families of their own, then the rate is decelerated again as they move to retirement
  3. Retirement: individuals become reliant on previous savings and government pensions
• Savings to age graph


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• 5 factors which influence consumer choice:

  1. income levels
  2. Age
  3. Credit availability
  4. future plans
  5. Price of the good/service itself
  6. Price of substitute and complementary goods
  7. consumer taste and preferences
  8. Advertising
• Social welfare is an addition source of income for individuals/families
• Example of socia welfare payments include:

  1. Aged pension
  2. disability support pension
  3. Jobseeker payment
  4. Parenting payment
• Utility: satisfaction that is derived from the good/service itself
• Substitute good: A good/service that would have the same effect/utility to another good/servie. SImilar to opportunity cost.

  Complement good: consumers tend to/have to espend on one or more other good/(s) for the good they intend to buy.
• As government collects taxes, they further distribute this in social welfare for the ones in assisstance
• A misconception social welfare is that most of it gets spent on jobseeker payment, however, a majority of it gets spent on disability support and aged care