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Household Behavior and Consumer Choice

13 Jan 2017Economics Essays

The patterns of household behavior and the choices the consumers make influence the labor and the capital markets. Household decisions play an important role in the economy because of its invariable relationship with firms. Household behavior and consumer choice may be summarized in the demands of the household, decision regarding the allotment of household budget or household income as it is related to the maximization of utility, substitution processes, the rates of wages and interests, and the cost of leisurely activities. Quijano and Quijano illustrated the influence of household behavior and consumer choice to the labor and capital market through a continuous chain or cycle.

Household decisions and consumer choices dictate the supply for labor and capital. The increase of decrease in supply for labor and capital affects the demand for labor and investment that consequently determines the failure or success of firms or business organizations and their capability to produce output supplies. Output supplies are put up in output product markets waiting for the rate of demand for products, which is influenced by household decisions and consumer choices. (Quijano & Quijano, 2007)

The role of household decisions and consumer choices is grounded on the assumptions that competing firms cannot control prices, products available in the market are homogenous or similar, and that households are aware of the nature and characteristics of products in terms of quality and price and firms or business organizations reveal information regarding rates of wages and interests, costs of capital, and the prices of output products in the market. Moreover, it is based on three decisions that households need to make such as the quantity of output products to order that then dictates the supply that will be allocated for labor, and spending and saving patterns. (Quijano & Quijano, 2007) These factors identify household behaviors and consumer choices to be vital in economics and market trends.

Household or consumer demand or the decision of a household regarding the demand that will be imposed to output products in the market is influenced by the price tagged to the product, the total income of the household or consumer, the accumulated wealth or assets (savings, properties, insurance, etc.) of the household or consumer, the prices of other products in the market, the prices of other products that the household or consumer needs, the inclination of the household or consumer, and the household or consumer’s assumptions regarding future economic situations pertaining to increased interests that will affect future prices of products, changes in wage rates, etc. (Quijano & Quijano, 2007)

These factors that determine household demand dictate the output products that households or consumers are more likely to purchase due to affordability and budget constraints. For instance, the total income of a household or consumer as a determinant of household demand influences opportunities for the household or consumer to purchase products, whether in a limited or limitless fashions, of course related to their likes and dislikes.

The maximization of utility refers to the household or consumer’s decisions when it comes to choosing products that will provide more benefits and fulfillment as compared with other products. Households or consumers distribute their income in order to maximize the advantageous and enjoyable results that they obtain from products. Maximizing utility means that households or consumers are more likely to purchase products that fit their income as well as provide them with full and lasting enjoyment or benefits. (Quijano & Quijano)Income and substitution effects have something to do with the price of products and commodities.

The income effect reveals that when the price of a particular product rise, household or consumers tend to lessen their purchase of that product. Moreover, when its price decreases, households and consumers are more likely to purchase that particular product, as well as other products in the market. On the other hand, the substitution effect implies that when the price of specific product increases, households and consumers tend to purchase less of that product or substitute it with products with lower prices. This household behavior and consumer choice influences the demand and supply for a particular product. (Quijano & Quijano, 2007)

Wage and interests rates depend on the economic situation. It refers to the actual relationship between wage, interests, and spending. The expenses of a household or consumer are highly dependent on wages and the price increase or decrease of products in the market. Households and consumers are then faced with the decision regarding expected sum of wage and type of job as well as the prices of products and commodities in the market. The status of the economy determines provided wages and interest rates. Therefore, when an economy is declining, it is unable to provide wage rates that are appropriate for products or commodities with increased interest rates. Households or consumers begin to prioritize and purchase what they need instead of what they need and want. The demand for necessities will stay the same while the purchase for other products will decline. (Waters, 2008)

The price of leisure is relative to the rate of wages. This means that time for leisure is compromised if the need to stay engaged in work in order to receive higher wages is prioritized. This influences expenses for leisurely activities and the rate of wages that households or consumers receive. Furthermore, choosing work over leisure is influenced by the demand to purchase a particular need or want, while at the same time compromising other activities or products that decreases time for work and lessens the rate of wages. (Quijano & Quijano, 2007)

In general, household behavior and consumer choices, such as patterns of demand, allocation of income for the purpose of maximizing utility, substitution as influenced by income and prices, wages and interest, as well as choosing work over leisure dictate the status of the economy. It determines what products are in demand, what supplies to increase or decrease, etc. It assists in making economic strategies and decisions based on the behavior and choices of households and consumers. In addition, determining household behavior and consumer choices provides relevant information to firms or business organizations in order to adjust organizational goals and objectives to suit the needs and demands of consumers as well as to become successful in the realization of these goals and objectives. (Crowe, Shuh, & Stavins, 2005)


  • Crowe, M., Shuh, S. & Stavins, J. (2005). “Consumer Behavior and Payment Choice“
  • Quijano, F. & Quijano, Y. (2007). “Household Behavior and Consumer Choices.” August 24, 2008, from Prentice Hall Business Publishing. Website: http://media.pearsoncmg.com/ph/bp/bp_case_econ_8/chapter/ppt/case_econ08_ppt_06.ppt
  • Waters, J. (2008). “Economy Forces Major Shift in Spending.” Retrieved August 24, 2008 The Wall Street Journal. Website: http://online.wsj.com/article/SB121338190561972555.html

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