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Module 4
Consumption
4.1 Analyze consumption
4.1.1
What is consumption?
Consumption is the spending of money on goods and services
What are the factors that affect consumption?
1. People buy goods and services because of:
a) needs (food, clothing, shelter)
b) wants
2. Wants are dependant on a variety of factors, such as:
a) disposable income, which is money that can either be saved
or spent;
b) age (tastes change with age)
c) lifestyle
d) level of education
e) price (the higher the price of goods and services, the
less likely it is that they will be bought).
4.1.2
How does advertising affect consumption?
Advertising is a message that attempts to persuade people to consume a
particular product.
a) Advertising can create a demand for goods.
b) An increase in production may lead to an increase in profit and jobs, as well
as a decrease in the price of a good.
d) Advertising promotes mass consumption
What techniques are employed in advertising?
1. There are two basic techniques - subjective and objective advertising
2. Subjective techniques try to persuade by a variety of methods (through scare
tactics, humor, fashion or by association with a famous person).
3. Objective advertising tries to inform consumers through their intellect. It
gives such information as price, benefits or harmful effects of the product.
What are the problems of advertising?
1. Consumers are sometimes misled by advertising that makes extravagant claims.
2. The cost of advertising increases the price of the product.
3. Big advertising budgets give large companies a competitive edge
4. Advertising can encourage consumers to over consume, leading them to exceed
their financial means
4.2 Establish the link between credit and planned occupation
4.2.1
What is credit?
Credit is the permission to acquire goods and services or money in return for
repayment with interest in the future.
Why is consumer credit important?
1. Consumer credit is important because it gives consumers the immediate use of
products even though they don't have the cash.
2. It can boost production and the economy
3. It is convenient for consumers because it helps them meet short-term
emergencies.
What are the disadvantages of credit?
1. Consumer credit can lead consumers to get heavily into debt. Sometimes they
are unable to repay this debt.
2. It can encourage consumers to buy on impulse.
3. It can give a false impression of real purchasing power.
What factors determine if a consumer can obtain credit?
Consumers may obtain credit if they satisfy some of the following conditions:
a) their character is considered to be good
b) their job record and credit history is found to be acceptable
c) they have good references
d) their ability to repay loans and their outstanding debts are found to be acceptable
e) their income and situation vis-à-vis job security is considered to be good.
f) their collateral (assets used as security to guarantee a loan) is satisfactory
g) they have a co-signer in the place of collateral. A guarantor agrees to repay the loan in case of non-payment of the original creditor.
What are the various types of credit?
There are four types of credit:
a) mortgages, which are only used to buy property or real estate
b) credit cards
c) personal loans from banks or financial institutions
d) installment plans
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