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Eco > 3.2 Households > Flashcards

3.2 Households Flashcards

1
Q

What are households

A

Households provide factors of production and consume the end products/services.

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2
Q

Functions of the households

A

Save
Spend
Borrow

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3
Q

What is disposable income

A

Income left to spend after tax.

Total income - income tax

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4
Q

What is utilitiy

A

Level of satisfaction derived from consuming a good/service

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5
Q

What is marginal utility

A

Additional satisfaction derived from consuming an extra unit of a good or service.

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6
Q

Unit of utility

A

utils

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7
Q

Factors that affect levels of expenditure

A

Confidence
Wealth
Interest Rate
Disposable income

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8
Q

Factors that influence spending patterns

A 
Age
Gender
Preferences 
Leisure time 
Technology 
Health 
Social attitude
Disposable income
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9
Q

What is saving

A

Part of the disposable income an individual chooses not to spend on goods/services, saving it for a future purpose.

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10
Q

Formula for saving ratio

A

Savings/Disposable Income * 100

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11
Q

Formula for saving ratio

A

Savings/Disposable Income * 100 (as a percent)

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12
Q

What is dissaving

A

Withdrawing from saving

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13
Q

How age changes spending patterns

A

Priority for diff goods and services change as age changes

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14
Q

How gender affects spending patterns

A

males and females buy diff goods and services

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15
Q

How leisure time affects spending pattern

A

The more leisure time you have, the higher the chance for you to spend money during that time.

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16
Q

Factors that influence why people save

A 
Future consumption
Confidence
Markets offering a variety of saving schemes
Interest rates 
Attitude to savings
17
Q

How does confidence affect why people save

A

save less when more confident, vice versa.

18
Q

How interest rates affect why people save

A

If govt. increase the interest rates you would start saving more money because you get higher amounts of interest on your money.

19
Q

What is borrowing

A

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.

20
Q

Why people may borrow

A 
Mortgages
Fund Expensive items
Fund private/tertiary education
Fund large projects 
Start a company/expand

MP CEE

21
Q

Factors that affect borrowing

A

Interest rates
Confidence levels
Availability of funds
Wealth

22
Q

How do interest rates affect borrowing

A

The higher the interest rate, the more expensive it is to borrow.
inversely proportionate

23
Q

How does confidence levels affect borrowing

A

Higher confidence in income –> more borrowing

More confidence in income means less chance on default

24
Q

How does availability/ease of funds affect borrowing

A

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.

25
Q

What is personal debt

A

The total borrowing by a person or household.

26
Q

What does defaulting mean

A

failing to pay a loan

27
Q

How does wealth affect borrowing

A

Wealthy individuals can borrow more since they have a higher chance of paying the loan in full and lower chance in defaulting on the loan. Banks are more likely to lend to wealthier individuals.

28
Q

When could personal debt become a problem

A

> variable interest loan - even a small change in interests could be a big amount
incomes fall - unemployed or bad health, etc. Won’t be able to pay loan back
Continue to borrow more money - monthly repayments rise significantly

29
Q

Definition of ‘insolvent’

A

Person who is declared bankrupt by court and cannot pay back their loans.

30
Q

Why could high levels of borrowing be very bad for the economy

A

High borrowing = high montlhy interst payments = more of consumers’ disposable income

They can’t spend on other goods and services. Leads to fall in consumer expenditure which leads to a leftward shift of agg demand curve

Production is cut - unemlpoyment rises. More people may suffer financial hardship and be unable to repay their debts.

Consumer spending would fall even more - vicious cycle- economic reccsion

Eco (40 decks)

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