Economic Decisions

• Factors influencing the economic decisions of Consumers

  • Personal Choice
  • Income
  • Bandwagon Effect
  • Level of education
  • Peer pressure
• Personal Choice


  A desire for a good/service that is acted upon by a consumer. People generally purchase goods that they want or need.
• Income


  The level of a person's income and how much can be purchased. If taxes and statutory deductions increase, people will have less money to spend. One must also note the level of a person's savings.
• Bandwagon Effect


  When someone buys a product because everyone else is buying it. This is usually the case when a good becomes highly popular among a certain group of individuals.
• Level of education


  The higher the level of education, the more money a person will have at his disposal. This can increase his spending and savings over time.
• Peer pressure


  Persons will spend or save based on influence from peers. For example, saving to buy a Blackberry or going to KFC on Fridays.
• Firms


  Production units, organized to produce goods and services used by the households.
• Producers/Firms influences on Economic Decisions

  • Cost of Production
  • Resource Base
  • Industrial relations
  • Change in demand
• Cost of Production


  When the cost of production increases the output of FIRMS generally decreases. This occurs because the goods/ services become less profitable and it is better to divert investments to more profitable goods.
• Resource Base


  The quality and quantity of resources available to a firm.
• Industrial relations


  The relationship between employers and employees must be good. If harmony does not exist, it will have a negative impact on the firm and productivity will be low. It is also necessary to project a good corporate image.
• Change in demand


  When there is a fall in demand for a product the FIRM will produce less of the item and vice versa.
• Government Influences on Economic Decisions

  • Laws and Grants
  • Taxes
  • Industrial Zones
  • Provision of infrastructure
• Laws and Grants


  One of the government's primary roles is creating and enforcing the laws of the country. If these laws are restrictive there will be fewer business activities. If these laws are more liberal the result is an increase in business activities.
• Taxes


  Taxes may be added to the price of a good which would help to limit the consumption of that good. E.g. Tax placed on cigarettes. A tax may be placed on the production of a good to limit how much is created.
• Industrial Zones


  These encourage and facilitate the activities of firms by giving them a safe space in which to operate.
• Provision of infrastructure


  The government can enhance business by providing access to clean running water, good roads, garbage collection, access to electricity etc. This increases the chances of consumers and supplies being able to access the business easily.