3.2 Households Flashcards
(30 cards)
What are households
Households provide factors of production and consume the end products/services.
Functions of the households
Save
Spend
Borrow
What is disposable income
Income left to spend after tax.
Total income - income tax
What is utilitiy
Level of satisfaction derived from consuming a good/service
What is marginal utility
Additional satisfaction derived from consuming an extra unit of a good or service.
Unit of utility
utils
Factors that affect levels of expenditure
Confidence
Wealth
Interest Rate
Disposable income
Factors that influence spending patterns
Age Gender Preferences Leisure time Technology Health Social attitude Disposable income
What is saving
Part of the disposable income an individual chooses not to spend on goods/services, saving it for a future purpose.
Formula for saving ratio
Savings/Disposable Income * 100
Formula for saving ratio
Savings/Disposable Income * 100 (as a percent)
What is dissaving
Withdrawing from saving
How age changes spending patterns
Priority for diff goods and services change as age changes
How gender affects spending patterns
males and females buy diff goods and services
How leisure time affects spending pattern
The more leisure time you have, the higher the chance for you to spend money during that time.
Factors that influence why people save
Future consumption Confidence Markets offering a variety of saving schemes Interest rates Attitude to savings
How does confidence affect why people save
save less when more confident, vice versa.
How interest rates affect why people save
If govt. increase the interest rates you would start saving more money because you get higher amounts of interest on your money.
What is borrowing
Occurs when individuals, firms or the govt. take a loan and pay it back to a financial lender over a period of time, with interest payments.
Why people may borrow
Mortgages Fund Expensive items Fund private/tertiary education Fund large projects Start a company/expand
MP CEE
Factors that affect borrowing
Interest rates
Confidence levels
Availability of funds
Wealth
How do interest rates affect borrowing
The higher the interest rate, the more expensive it is to borrow.
inversely proportionate
How does confidence levels affect borrowing
Higher confidence in income –> more borrowing
More confidence in income means less chance on default
How does availability/ease of funds affect borrowing
The easier it is to borrow money and the more ways there are to borrow money, the higher the borrowing. Eg: credit cards and internet banking.
