Analysis of Consumption Patterns of Different Socioeconomic Groups

Analysis of Consumption Patterns of Different Socioeconomic GroupsThe look into reported in this dissertation was on Analysis of Consumption Patterns of Different Socio Economic Groups. The purpose of enquiry was to study the socio-economic impact of habit of the househ overages and how they spend their income. The secondary data was collected by consultation of literature in the libraries and Internet and also from the material printed by variant academic journals. The uncreated data was ga at that placed by floating questionnaires and conducting some(prenominal) different inter gather ins. Stat graphic software was applied to analyze data for multiple regression analysis and the results were interpreted by usual principles of statistics. The findings suggested that the custom was a truly crucial scarper of income just t present were other figures apart(predicate) from income that moved(p) the take of use of goods and services of household and their p summons. This wou ld throw an effect on the economic train as well, hence marketers should get it on and down the stairsstand the needs of the household to target at that place product and assists to households for betterment of the society as well as profitability of the firm.INTRODUCTIONOverview of the emergence under considerationConsumption is a topic on which a the great unwashed of search has been carried unwrap by the economists and psychologists to know what draw outs to different takes of satisfaction from consumption what factors lead to variation in consumption tallys of households with very(prenominal) income takes. This research paper intends to find out important factors that influence the consumption levels of diverse households, whether the individual preference has impacts or not while making consumption decisions on a household level. What boundaries restrict the consumption levels?The consumption pattern in Pakistan has improved over the years for various(a) reaso ns such as increase in incomes and more availability of different kinds of goods and services but there always have been relegate conflicts present hence leading to disparities among rich and the poor classes. So the growth in consumption has been in different amounts among the different socio economics groups this leads to an immense increase in the social stratification.Apart from factors such as sizing of the family, occupation, structure of the family, standard of breathing and location one of the factors that has draw relation with the consumption is creation. If the population increases the consumption level changes drastically. as well as if the population consists of elderly or has baby boomers the pattern of consumption is affected greatly by the type of goods and services produced in the sparing is affected moreover consumption patterns influence the dispersion of income and at times leads to motivation for take a shiting a higher lease and this thesis would provid e us with the deeper understanding of consumers and their household consumption pattern and their motivation behind earning and spending in a particular manner.Background of the topicConsumption function in economics is the relationship among consumer spending and the various factors that are determining it the consumption function comes into formation collect to roll up spending of all the households in the parsimoniousness hence at the Economic level the uniqueness of consumption functions are imperative for many questions in two macroeconomics and microeconomics. At the smaller level that is the household or family level, these factors may comprise of income, wealth, expectations some the level and riskiness of future income or wealth, interest rates, age, educational activity, and family size. Individual level the consumption function is also inc blood lined by the consumers preferences that are behavioral in nature such as patience, or the willingness to delay gratifica tion, by the consumers prelude towards risk, and by whether the consumer wishes to leave a inheritance to their family members.Theories and hypothesis were developed by Keynes on consumption patterns these were evolved from the early studies that supported the fact the shortly run fringy zest to consume was much more stable when compared with average propensity to consume. Economists supercharge more refined the original work of Keynes and came up with theories of permanent income hypothesis, conjecture of bread and butter cycle hypothesis and notification effect hence they were able to establish the fact that consumption was extremely responsive to income changes on which Duesenberry tried to rebut it with demonstration effect hypothesis. These theories still could be found in various economic text booksEconomists developed Engel curves these curve showed consumption levels and patterns graphically they even derived work out constraints curves with the help of indifferenc e curves providing a lot of evidence as how and what effects the consumption that in turn shows the status and the lifestyles of an individual household in the economy. importance of the study with respect to the worldConsumption level helps in identifying the level of demand of goods and services in the economy and the type of goods and services that are demanded in a particular economy and indicate what sort lifestyle a particular society is enjoining example Ameri washbasins are famous for not obstetrical delivery and they consume a lot of consumer non durable items when compared with rest of the world .Hence saving(a) hampers consumption and can greatly affect overall demand in the economy if there is a lot of saving in the economy marginal propensity to consume goes down showing that saving and consumption has a electronegative relationship.This could lead to great problems at a macroeconomic level such as reduction in aggregate demand and unemployment of resources in the ec onomy here government also needs to intervene and to improve the economy this would be achieved by increasing demand by increasing the government spending.These days consumption patterns are highly influenced by multinational or transnational companies this phenomena is known as mass consumption or consumerism. Consumption of goods produced by MNCS or TNCs has lead to the adoption of different cultures and consumption patterns in a local household a common example of this would of Mc Donalds today you might be in any part of the world but you would always find a branch of Mc Donalds due to globalization in the economy would lead to greater choices that an individual would face while making consumption decisions hence changing consumption patterns of a very traditional economy like Pakistan. Other factor that could potentially change the consumption pattern would be technology as traditional goods and services would become redundant and no acheer will be demanded hence this would le ad to fluctuation in consumption levels as well as the patterns of consumption.There is high dissimilitude in consumption patterns among different countries due to differentiation in social classes differentiation and difference in per capita income, population and various other factors there are market biases on the bases of highlife or mass consumption of goods.Importance of study with respect to PakistanSince Pakistan is a developing country it has a lot of different classes and a lot of population to the highest degreely consisting of children and teenagers with such a diverse society there is a lot of difference in consumption level and patterns they are influenced by income, religion, locality in which a particular household resides and the occupation of the head of the household is since Pakistan has a reinforced culture of saving and transferring bequest to future generation hence how does a particular household roots what to consume and how to consume?We consume a lot differently when compared with the western society as they focus on more luxury items and consumer durable goods on the other in our society households focuses on basic necessities of life. More over there is a lack of studies that have been carried out on the consumption pattern of socio economic groups that are prevalent in Lahore.Reference groups play an important role in determining the consumption patterns of various households and demonstration effect has the strongest effect on the consumption of the households in Lahore among the various different classes. This research paper would help to unravel the preference of the households and the types of goods that they consume and how do they decide and come to common grounds while they consume as in iodine unit of family since we have a very strong culture of living together in extended families.As many generations are living and consuming together the basket of goods and services that they consume would be highly differentiated . and these days trends are changing and people are moving towards nucleus family system and Pakistan is enjoying a lot of female participation in work campaign hence will this red-hot trend affect the way a family consumes as a household? second Lahories as consumer have a lot of choice and since at this day and age a lot trend is shifting toward mass customization this research paper would allow to analysis such trends in Lahore. look questionConsumption patterns of different socio-economic groups take into consideration the trine main social classes the elite class, the set income group and the lower income group that resides in three different localities of Lahore namely interior Lahore or the old Lahore, onlyama Iqbal Town and Defence housing authority. Households with different casts and religion would be targeted to cover the maximum human body of the different socio economic group. There is a lot of diversity in terms of socio economic groups in Lahore hence their con sumption patterns also varies drastically they have income that ranges from 3000 rupees monthly to more than 80,000 rupees.A developing country like Pakistan faces a lot of discrimination in terms of income disparities, low income per capita income and a growing population that effect consumption as a whole. The research question for my thesis is a combination of macroeconomics and consumer behavior. It would provide us with the deeper understanding of consumers and their household consumption patterns. This would further allow producers to target and position their products in such a way that they become an integral of household consumption and as a result the economy can flourish.CHAPTER 2LITERATURE REVIEWYing (2003) conducted a research explaining the fact how children influenced the spending patterns of family and in about 27.8% of families, childrens consumption uses one third of the familys total income. In 35.6% of families, childrens consumption uses 40% of the familys total income. In 19.4% of families, childrens consumption takes one half of the familys income. And in 7.4% of families, childrens consumption takes over one half of the familys income. Thus in most families, the childs consumption level is higher than the average per capita consumption of the family. He highlighted various factors such as higher education levels for children including extra amounts paid for private education and tutors moreover more recreational activities and high end gadgets like mobiles phone, laptops and increased expense towards health care of the children.Krueger and Perri (2005) found out in a research paper that increase in income inequality in U.S.A was prevailing but there was no inequality consumption. This was because of different trends within-group inequality which was faced an increase in income and a little less increase consumption. They developed a simple framework to identify analytically that how income inequality could result in consumption inequali ty with respect to standard incomplete market stupefy gum olibanum they wanted to document this consumption inequality facts from the U.S data. They have used data from the Consumer Expenditure (CE) vision for the years 1980-2003.Cutler (2005) tries to identify implied marginal propensity to consume out of a given income level in Hong Kong for doing this he develops a proxy measure for excavate income then tries to infer consumption function with respect to life cycle model. The author develops a reliable relation between proxy measure of struggle income and long run propensity to consume the estimate calculated comes out to be 0.87 for Hong Kong depicting the fact the marginal propensity to consume is in line with other industrial countries of the world.Carroll, Fuhrer and Wilcox (1994) conducted a research paper which talks about habit formation that is the consumption done when a household is not enjoying same level of income as it did previously but the consumption pattern s of the household remains the same. Secondly they tried to analyze the impact of consumer sentiments on the consumption patterns taking into considerations the various economic variables into account. They ruled out permanent income and pure life cycle hypothesis and stated consumer spending is an unclear measure of uncertainty when uncertainty increases the level of consumption falls hence leading to precautionary savings.Chow, Fung and Ngo (2001) did a research about the Chinese economy and Chinese entrepreneurs who have grown along with the Chinese economy this consumer group is the most influential in consuming expensive goods and services. This research paper compares and contrasts the consumption habits of low income business with that of entrepreneurs coming to shutting that small businesses incomes are transitory and more volatile hence their consumption is less and they tend to save more on the other hand entrepreneurs earn more and spend more lavishly on meals, traveling , private education and luxury items. Geographic locations and socio-demographics of household have epochal effects on the tastes and preferences. Similarly socialisation activities that are carried out by the entrepreneurs are the second largest expense in their budgets as they need a lot of networking to carry out the business. only when on the other hand low income groups tend to spend a large proportion of expenditure on activities such as medical care, socializing and education of their children. The authors have run a regression model using various factors such socio demographics and other factors to find out strongest affecting variable.Aydin (2006) talks about the consumption patterns in turkeys different socio economic classes and finds out that globalization has led to transformation, reconfiguration and reformulations of class structure and this is leading to social shifts from class based politics to identity operator politics, ideology to lifestyles and mass product ion to consumption these forces have fuelled the social change hence leading to emergences of new middle class living a new leisure lifestyle. The research reapproved the fact that social class variables had a meaning(a) on consumption income had the strongest positive effect of all at the consumption level simultaneously income did not alter the influence of class difference. Education had effected the class differentiation the group with higher education had better living standards thus making education important mediating factor. The analysis in this research paper depicted the class structuration results due to interaction income, education levels, and residential location.Phipps and Burton (1998) did a research where they assume that the household consumer behavior is equal to household utility function and this function is maximized with respect to single budget constrain and incomes from both the partners are pooled. only if both the partners have different utility function s the households comprising of teenagers with incomes add more complication to analysis hence they preferred to avoid it. They found household income, education levels of economize and wife, region, level of urbanization, age and number of children is of great importance to household utility curve. Income earned by the wife is more likely to be used for eatery food, her clothes and kids clothes. Whereas husbands income is allocated towards transportation, they considered clothing as personal private good and it increased with the levels of income of each individual.Thomas (1993) this paper tries to find out whether all household members make do same preferences or they are dictated by any one member of the household. Data taken into consideration is from a survey carried out by Instituto Brasilleri De Geografia they came to a conclusion that when income is in hands of females shares of expenditure increases towards housing, education, health, household services and recreation when males are given the budget they tend to spend excess on health, household service and recreation. Education is considered intervening variable for earning hence increase in consumption, so they exclude education from demand function and include it as a valid instrument for total income. The researchers have come to these conclusions by conducting bilinear and quadratic models on the complied data.Bonney (1988) previously sociological analyst of British class structure consider males as the only major determinant of the social class position of the household along with time the trends have changed today there is greater involvement of married females in paid work. This phenomenon is making wives extremely important in family budgets and the socio class location of the household, a husbands increase in pay would negatively affect females participation in paid work but on the other hand the increase in wives earning would have smaller but negative effect on their counterparts income . This increases their say in consumption as they are now more economically active.Sommer (2003) discuses that under habit formation it is fractious for the households to adjust to their new income levels this happens gradually if a tax excommunication is implemented they respond to such policy slowly. But some consumers save a particular(prenominal) amount of income as a precautionary measure to maintain a similar standard of living.Megir (2004) talks about the theory of consumption function that compete a vital role in explaining Keynesian demand management. Transitory tax policy or transitory income could have insignificant effect on real consumption though income is more volatile than consumption but the long run marginal propensity to consume out of the income is higher than the short run.Dorlando(2010) carried out a research to investigate the importance of behavioral principals in micro-foundation of Keynes consumption theory. It was concluded that behavioral instead of m aximizing principals can be really considered as possible for micro foundation for Keyness work. He said there are chances of cross fertilization of Keynesian approach and behavioral sciences in reference to theory consumption function. This research showed that utility maximization is not the major focus Keynes representation of individuals behavior and many subjective factors are include in the consumption theory lastly the traditional aggregate consumption function is immensely based on maximizing agents.Khan and Dhar (2004) carried out a research on behavioral decision theoretic perspective on hedonic and utilitarian choices and they found out that difference between purchase and consumption of goods and service found out that there is a very thin line which consumer does not even realize and decision making of consumption is merely affected by income, preference and lifestyle of the consumer.Tai and Tam (1997) discussed the lifestyle of females that was changing due to the dif ferent socio economic factors such as delayed marriage, smaller family size and single parents have lead to changing dynamics of consumer market as a result the consumer preference are changing and consumption pattern of the families. completely these research papers have added a new dimensions to the topic under consideration emphasis on the fact consumption is a vital function of income but there are many other factors that influence the consumption pattern there are incidence when two households with sane income level may have different consumption pattern due to lifestyle, preference and the stage of lifecycle they are in as a household greatly affects the consumption patterns. All these researches try to explore the behavior patterns that are crucial for molding the consumption pattern all these researches have added different key reasons and not a single research as been able to come up with any common behavior traits in the different societies of the world this phenomena indi cate that the consumption patterns changing agree to society the house hold resides in.CHAPTER 3METHODOLOGYResearch typeThe research undertaken would be quantitative research a lot of facts and figures would be included they would help to support the arguments that will be established after critically analyzing the results obtained by this researchData type and research periodThe research would be primary and secondary as a lot of previous research papers have been consulted for reference and further data would be collected regarding the Pakistani economy and how does an average Pakistan person consumes this research would be carried out in 2011 the data under consideration is cross sectional since its both secondary and primary .Sources of dataThe data would be collected through tailor made questionnaire that would help us to support our arguments and allow us come to a practiced conclusion and recommendation at the end of the thesis. Secondly interviews the different retailers o f the locality would be conducted to reduce the biases in the questionnaire as people hesitate to provide bring together information. Thirdly I would take into consideration my own observation that would facilitate better understanding of the topic as well as its evaluation.The questionnaire was floated in among three various locations where many different socioeconomics groups were prevalent According to the questionnaire analysis the percentage of male and female is in the ratio of 42% and 58% respectively. Almost cardinal different casts were targeted they showed that on average a household spends 50% of their income on food and 20% of income is spend on clothing and 10% of income is spend on housing, schooling and about 20 different casts were targeted through the questionnaires that floated among the three different localities respectively (see appendix A)The left over income is utilized by directed it towards saving and entertainment expenditure the ratio of income directed towards savings and entertainment expenditure is about 20% see appendix. In the various interviews that I have conducted, I found out that there is significant difference in the way the different socio economic groups spend their income and their consumption varies accordingly see appendix. The population of Pakistan is more often than not humongous with a very s small numbers of minorities that are prevalent in Lahore basically the population trends majorly consists young population.Theoretical framework and variables under considerationOperational definitionsStandard of living It would include income spent on consumer durables, non- durables, health, recreation and entertainment, social services and luxuries goods by the households, larger the amount of the income spent on these goods would indicate that the household enjoys a higher level of standard of living and would be consuming a larger proportion of disposable income.Size of the family The number of the people living toget her under one roof and consuming the pooled income i.e. An identical source of income despite the fact whether they are associate or not would be considered as a family.Structure of the family type of household taken into consideration would be nuclear family structure or the extended family structure apart from the two parents or the single parent households, all of these types of households are very common in Pakistan though the recent trends are shifting to nuclear family structure. stead This would take into consideration the area in which a particular household resides there are three localities under considerations in this research paper, each of these localities would be depicting different socio economics classes in terms of income, standard of living, occupation and sizes and structure of the families living there.Occupation The means from where the households causes income for consumption purposes this would even account for income generated from assets that a particular household maintains e.g. rent on assets or return on capital and things like credit cards would also be included as they tend to increase the disposable income for the household thus allowing them to attain a higher consumption level.The life-cycle model it states that save when people are young for their old age they do this to dis-save in their old age as they have no other income sources to support their consumption. Hence this would lead to fluctuations in consumption patterns. They can finance their old age either by selling off the assets that they have accumulated in their young or by saving income. interventionEconomic model of the income spent on consumption was developed by John Maynard Keynes he mastered this area of economics by developing various theories such as absolute income hypothesis, which supports and states that consumption is solely a function of disposable income earned in that period of time in that. Difference between predictions of Keyness and other econo mists leads to various empirical data sets, in the long run, this led to a number of other theories related to consumption that emerged after Keynes work-most prominently, these were based on relative income (Duesenberry), permanent income ( Milton Friedman ), and life-cycle income (Modigliani and Brumberg).Keynes stated that a change in income will result in a relatively smaller change in consumption the marginal propensity to consume will be less than one. Keynes also argued that the marginal propensity to consume will be less than the average propensity consumed, which in return stated that consumption declines as a percentage of income as income rises or we can say antagonistically as income increases the consumption decreases. short-run studies broadly depict the consumption function of this sort, but long-run data showed that the marginal propensities and the average are roughly equivalent. The relative income hypothesis supports consumption related to other households and th eir past income. Firstly it implies that the proportion of income consumed by the household remains same, assuming that the position of a household remains constant in the long run on the distribution curve. This provides us with the long-run evidence. If the household is placed on the higher side, propensity to consume stays on the lower average. Secondly household is easier adjusted with the rising incomes as compared to the falling incomes this is known as ratchet effect which handles the consumption when there is a decline in the income this is principally due to habit formation of consumption by the households.The measurement of life time income is an issue of key importance to measure consumption as a function. Permanent income hypothesis states that consumption pattern is directly dependent on the total income and the total wealth which an individual expects to earn over their lifetime. The life-cycle hypothesis on the other hand assumes that individuals that consume a stead y proportion of their income and that the present value of their life time income as a measure in a number of financially various areas of life where an individual earns different amount of income at various ages such as, childhood, adolescence , and old ageCHAPTER 4RESULTS AND ANALYSIS guide generated through software stat graphicMultiple Regression equationy = 0.747966 + 0.152745*location + 0.11217*occupation + 0.100276*size of the family + 0.142338*standard of living + 0.267032*structure of the familyThe results of the multiple linear regression model to the raw that was collected by the questionnaire, describes the relationship between y and 5 independent variables. The equation of the model that is mentioned below is showing how strong relation each independent variable has with the dependent variable y.y = 0.747966 + 0.152745*location + 0.11217*occupation + 0.100276*size of the family + 0.142338*standard of living + 0.267032*structure of the familyIn view of the fact that the P-value in the ANOVA table is less than 0.01, there is a statistically there is a strong relationship between the variables at the 99% confidence level. The R-Squared statistic shows that the model as fitted explains 99.0259% of the variability in y. The adjusted R-squared statistic, which is more appropriate for comparing models with different numbers of independent variables, is 23.2334%. The standard error of the estimate demonstrates the standard deviation of the residuals to be at the figure of 0.51929. The mean absolute error (MAE) of 0.373951 is the average value of the residuals. Hence this statistical information ensures that the statistical model that is developed is statistically strong and could be accepted as good model for the research paper.In determining whether the model can be cut down or not, notice that the highest P-value on the independent variables is the figure of 0.2039, belonging to size of the family Since the P-value is greater or equal to 0.10, that term is not statistically significant at the 90% or higher confidence level. Consequently, I could even remove size of the family from the model as this variable has p- value greater than 0.10.Research hypothesisSize of the family affects the consumption pattern of socio-economic groupsH0 significantH1 insignificantOccupation affects the consumption pattern of socio-economic groupsH0 significantH1 insignificantStructure of the family affects the consumption pattern of socio-economic groupsH0 significantH1 insignificantStandard of living affects the consumption pattern of socio-economic groupsH0 significantH1 insignificantLocation of households affects the consumption pattern of socio-economic groupsH0 significantH1 insignificantDiscussion of hypothesis without delay these research hypotheses would now be discussed in detail so that we now as to what could be the possible reason of these hypotheses to be rejected. Stat graphic was used to generate the multiple regression analysis.Size of the family affects the consumption pattern of socio-economic groupsH0 significantH1 insignificantReject H0 because P value is more than 0.01%The p-value of this particular hypothesis turned out to be 0.2039 which shows that this value is greater than 0.01 hence, Size of family hypothesis gets rejected because of the fact major respondents think and strongly believes on the fact the responsibility of every soul is on Allah hence many respondents said they dont consider the size of their family when they spend their income and many Pakistani head of the families said that they earn for their families to provide them with comfortable life hence they dont even bother with the size of their family this fact is one of the main reasons of Pakistanis high population . This phenomenon is highly prevalent in low income groups. But middle income and high income groups try to spend strategically.Occupation affects the consumption pattern of socio-economic groupsH0 significant