LESSON 2

THE CONSUMER IN THE ECONOMY

TOPICS
1. The Consumer
2. The Effects of Family Structure in the Economy
3. The Standard of Living
LEARNING OUTCOMES
At the end of the lesson, you should be able to:
1. Define consumer and discuss its role in the society
2. Enumerate the effects of family structure in the economy
3. Explain the standard of living.

TOPIC 1: THE CONSUMER

Consumers are people or organizations that purchase

products or services. The term also refers to hiring goods
and services. They are humans or other economic entities
that use a good or service. Furthermore, they do not sell on
that item that they bought. They are the end users in the
distribution chain of goods and services. In fact, sometimes
the consumer might not be the buyer. For example, young
children are the end users of toys, but their parents buy
them. Therefore, in the market for toys, the buyer and
consumer are often different people. Another,
a consumer is a person or a group who intends to order, orders, or uses purchased
goods, products, or services primarily for personal, social, family, household and similar
needs, not directly related to entrepreneurial or business activities.

The consumer plays a vital role in the private enterprise (market) economy. Rational
consumers freely cast their money (like votes), collectively or privately, in favor of one
product among many competitors. The consumer's self-interest and the self-interest of
the numerous competitors direct the production of the quantities of goods and services
that society desires at prices that are largely determined by competition.

The market mechanism is the means of allocating scarce resources. The decisions
concerning the use of resources are made privately by consumers or collectively as
consumers of public services and by business, agriculture, labor, and government. The
decisions of consumers interact with the decisions made by individuals or groups in
agriculture, labor, trade unions, business, and government to formulate and achieve the
economic goals of society. Attainment of these goals depends largely on effectively
teaching young consumers how to convert their resources into goods and services which
will lead to a better quality of life for them.
Rational, well-informed consumer decisions help individuals get maximum satisfaction
from their limited money and, at the same time, help decide the best use of the nation's
resources.

On the other hand, consumer behavior is extremely complex as it involves the individual
mindset of a person, personal preferences and attitudes, and different levels of
consumption. Especially, in times of financial crisis, consumers experience a change in
their living standard, which has an impact on their preferences and level of spending for
consumption. In the era of digitization, e-commerce and mobile shopping have greatly
increased. Consumers expect seamless delivery of products when shopping online,
including fast expedition and free one-day shopping. In addition, a flexible return policy
is also important for e-commerce growth. The growth of big data and the potential of
connected devices promise consumers a totally new experience of consumption. Smart
phones, smart fridges, smart cities, all integrate advanced information and
communication technology and the internet of things, seeking to manage consumer
preferences and attitudes in an innovative way. To anticipate the growing consumer
demand, companies should address consumer needs. Early adopters offer pioneering
energy and safety solutions for smart homes responding to nearly 75% of consumers,
who would trust their won and their family’s safety in a smart, connected device. In
addition, an estimated 30% of capital expenditures is invested in supply-chain
technologies. Small businesses seek to offer consumers innovative fulfillment solutions,
including logistics, transportation and order management, to gain competitive
advantage.

Economics and Marketing

A consumer is one that buys goods for consumption and
not for resale or commercial purpose. The consumer is an
individual who pays some amount of money for the thing
required to consume goods and services. As such
consumers play a vital role in the economic system of
capitalist economy. Without
consumer demand, producers would lack one of the key
motivations to produce: to sell to consumers. The
consumer also forms part of the chain of distribution.
Recently in marketing instead of marketers generating
broad demographic profiles and fisio-graphic profiles
of market segments, marketers have started to engage in personalized
marketing, permission marketing, and mass customization. Largely due to the rise of
the internet, consumers are shifting more and more towards becoming prosumer,
consumers who are also producers (often of information and media on the social web),
influence the products created, actively participate in the production process, or use
interactive products.

Laws and Politics

The law primarily uses a notion of the consumer in relation to consumer
protection laws, and the definition of consumer is often restricted to living persons and
excludes commercial users. A typical legal rationale for protecting the consumer is
based on the notion of policing market failures and inefficiencies, such as inequalities of
bargaining power between a consumer and a business. As all potential voters are also
consumers, consumer protection has a clear political significance. Concern over the
interests of consumers has spawned consumer activism, where organized activists do
research, education and advocacy to improve the offer of products and services.
Consumer education has been incorporated into some school curricula. There are also
various non-profit publications, such as Consumer Reports and Choice magazine,
dedicated to assist in consumer education and decision making.

TOPIC 2: EFFECT OF FAMILY STRUCTURE ON THE ECONOMY

Effects of Family Structure on the Economy

Family structure and economic well-being are correlated. Behind the demographics of
changing family structures with all their economic implications lies a deeper change: the
lessening capacity for the intimate social relationships that marriage demands. In 2008,
only 45 percent of American seventeen-year-olds were in a family headed by their
biological parents, leaving them weaker in their relational capacities than prior
generations. The numbers are lowest among African-Americans, where only 17 percent
of seventeen-year-olds have spent childhood in an intact family. Among Asian
Americans the intact family is strongest, but even for them it is only 62 percent. As this
research illustrate, these data have profound implications for both the household
economy and the national economy, and cannot be disconnected from the fiscal strains
this nation is experiencing.

Poverty rates especially highlight this strain. Poverty is principally the problem of non-
intact family structures. Compared to married families, six times as many female-
headed families are impoverished. There are differences in the financial well-being of
always-single mothers and divorced mothers, but poverty and welfare needs are major
problems for female-headed households. Data collected in 2001 shows that more than
two-thirds of children in never-married families live at or under official levels of poverty
compared to 12 percent of children living in two-parent, married families.
Data from the National Longitudinal Survey of Youth reveal that a child of a single,
never-married parent will live one-half of his or her childhood in a household officially
classified as poor. If the parent eventually marries, the child will spend about a quarter
of his or her childhood living in poverty, which is about the same amount of time that
children of divorced families spend in poverty. However, children of married, intact
families, will spend only 7 percent of their childhood, on average, in poverty.

The correlation between child poverty and living outside of an intact family is even
stronger in the African-American community. According to Current Population Survey,
the chances that African-American children would experience poverty in 1998 was
seven times greater among those who live in a non-married household than those who
live in a married-family household. Data from 2006 show that, while there are almost
equal numbers of married and not-married black families with children under 18, huge
disparities separate the two household types that live in poverty (7.9 percent of married
families versus 25.3 percent of not-married families).
Marriage
Married couples enjoy larger incomes, greater net
worth, and greater year-to-year net worth
growth.
Ninety-seven percent of millennials who follow
the “success sequence”—receive at least a high
school degree, work, marry, and lastly bear
children—never experience poverty in their
young adult years.
Married couplescreate the best economic
environment for children.
Their children experience more economic
mobility and less poverty in childhood and are
more likely to earn a higher income and work
more hours as an adult .
Re-marriage
Remarriage after divorce increases a family’s
income, though income and net worth rarely rise
to pre-divorce levels.
Children whose mothers remarry after divorce are
less likely to live in poverty.
Cohabitation
The relationships are frequently unstable and
of short duration.
It produces weaker economic outcomes than
marriage
Cohabiting men have less stable employment
histories than married men, and cohabiting
couples earn less and are less likely to pool their
incomes than married households.
They also have low net worth and low net worth
growth, are more likely to be poor, and create a
less stable environment for children, compared to
married households.
Single Parenthood
Single parents, and single mothers, in particular,
face remarkably difficult economic circumstances.
Single mothers have the lowest median
income and the lowest net worth of all family
structures with children.
Children of single mothers are at increased
likelihood of dependence on welfare benefits
during childhood and enjoy less economic
mobility than children in married families as
adults.

Intergenerational Effects
Numerous academic and social science researchers have demonstrated how the path to
achieving a decent and stable income is still the traditional one: complete school, get a
job, get married then have children, in that order. The journey toward a secure income
can be derailed by choices growing children make, such as dropping out of school or
getting pregnant before marriage. But generally, children who grow up in a stable, two-
parent family have the best prospects for achieving income security as adults. Because
of recent advances in the methods social scientists and economists use to collect data,
researchers are taking a broader intergenerational view of America’s poor. From this
vantage point, it has become clear that federal policies over the past three decades
have promoted welfare dependency and single-parent families over married parents
while frittering away the benefits of a vigorous free market and a strong economy.
Today, the economic and social future of children in the poor and the middle class is
being undermined by a culture that promotes teenage sex, divorce, cohabitation, and
out-of-wedlock birth.

TOPIC 3: STANDARD OF LIVING

A standard of living refers to the amount and quality of material goods and services
available to a given population. The standard of living includes basic material factors
such as income, gross domestic product (GDP), life expectancy, and economic
opportunity. The standard of living is closely related to quality of life, which can also
include factors such as economic and political stability, political and religious freedom,
environmental quality, climate, and safety.

Understanding Standard of Living

The standard of living is often used to compare geographic areas, such as the standard
of living in the United States versus Canada. The standard of living can also be used to
compare distinct points in time. For example, compared with a century ago, the
standard of living in the United States has improved greatly. The same amount of work
buys an increased quantity of goods, and items that were once luxuries, such as
refrigerators and automobiles, are now widely available. Also, life expectancy has
increased, and annual hours worked have decreased. In a narrow sense, economists
frequently measure the standard of living using Gross Domestic Product (GDP). Per
capita GDP provides a quick, rough estimate of the total amount of goods and services
available per person. While numerous, more complex, and nuanced metrics of the
standard of living have been devised, many of them correlate highly with per capita
GDP.
Standards of living are usually higher in developed countries such as the United States,
than in less developed nations. In fact, basic measures of the standard of living (such as
per capita GDP) are often used to define the differences between more and less
developed countries. Emerging market economies usually see rising standards of living
over time as they grow and develop into modern, industrialized economies.

An Example of a Living Standard Measure

One measure of standard of living is the United Nations' Human Development Index
(HDI), which scores 189 countries based on factors including life expectancy at birth,
education, and income per capita. As of 2018, the countries with the five highest HDI
scores are Norway (0.953), Switzerland (0.944), Australia (0.939), Ireland (0.938), and
Germany (0.936). Conversely, the countries with the five lowest 2018 HDI scores are
Niger (0.354), Central African Republic (0.367), South Sudan (0.388), Chad (0.404) and
Burundi (0.417), although Syria, Libya, and Yemen experienced the most dramatic
decreases in living standard.

To exemplify the difference between the scores of 0.953 and 0.354, Norway has a life
expectancy at birth of 82.3 years, 17.9 expected years of schooling (per citizen), gross
national income (GNI) per capita of $68,012 (PPP-adjusted currency units), a homicide
rate (per 100,000 people) of 0.5, and an internet usage rate of 98.4% of its population.
Niger, meanwhile, has a life expectancy at birth of 60.4 years, 5.4 expected years of
schooling, a GNI per capita of $906, a homicide rate of 4.44, and an internet usage rate
of 10.2%. The U.S. scored thirteenth on the list, with a combined score of 0.924, a life
expectancy at birth of 79.5 years, 16.5 expected years of schooling and GNI per capita of
$54,941.

Standard of Living vs. Quality of Life

The terms standard of living and quality of life are often believed to mean the same.
While they may overlap, there is a difference between the two. A standard of living
generally refers to wealth, comfort, material goods and necessities of certain classes in
certain areas—or more objective characteristics, whereas a quality of life is more
subjective and intangible, such as personal liberty or environmental quality.
Characteristics that make up a good quality of life for one person may not necessarily be
the same for someone else.

Task/Activity

A. Written Work. Discuss comprehensively in a separate bond paper.

1. Explain the roles of consumer in the society.
2. Differentiate the standard of living in countries in Southeast Asia. Present your
output during online discussion.