BULACAN STATE UNIVERSITY

Sarmiento Campus
How Income Changes Affect Consumer Choices

Republic of the Philippines

BULACAN STATE UNIVERSITY
Sarmiento Campus
City of San Jose del monte, Blanca

How Income Changes Affect Consumer

Choices
In partial fulfillment the requirements in Basic Microeconomics

Submitted to:
Ms. Sarah Jane Haber

Submitted by:
Aruta, Rhayner James
Macaraeg, Chelzya Nicole
Tumbado, Mary Joy
Naig, Allysandra Gail
Co, Gleazeny
GBA 2C

2nd Semester

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How Income Changes Affect Consumer Choices

Table of Contents

Title Page………………………………………………………………………………….............1

Table of Contents……………………………………………………………………………...…..2

Abstract…………………………………………………………………...………………....….…3

Introduction………………………………………………………………………………….…....4

Background of the Study………………………….................................................................5

Methodology……………………………………………………………………………………...6

Result……………………………………………………………………………………...……...8

Conclusion………………………………………………………………………………. ……..16

Appendices……………………………………………………………………………………….17

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How Income Changes Affect Consumer Choices

Abstract

The budget constraint framework suggest that when income or price changes, a number of

responses are conceivable. When income rises, households will desire a bigger quantity of regular

goods, but a lower quantity of inferior products. When the price of a good rises, households

normally desire less of it—however, whether they demand a substantially smaller quantity or

merely a slightly smaller quantity depends on personal preferences. In addition, a greater price for

one commodity can lead to increased or decreased demand for the other. The impact of income

when the higher price implies that, despite the fact of actual income is unchanged, the purchasing

power of income has been reduced; this always occurs in tandem with a substitution effect. The

substitution effect is when a price changes, people are enticed to consume less of the good with

the higher price and more of the good with the lower price; this always occurs simultaneously. The

proponents are group of students taking up the subject “Basic Microeconomics” under the advisory

of Ms. Sarah Jane Haber, the proponents of the research had come up with the decision to choose

How Income Changes Affect Consumer Choices , as the main focus of the study. This study review

different empirical approaches that proponents have taken to estimate how income changes affect

consumer choices. This research paper wants to know what the different problem behavior of

customer choices are, what the products they usually buy are and how to manage their money to

easily know their opinion.

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How Income Changes Affect Consumer Choices

Introduction

The change in the quantity demanded resulting from a change in price of a good can vary

depending on the interaction of the income and substitution effects. For inferior goods, the income

effect dominates the substitution effect and leads consumers to purchase more of a good, and less

of substitute goods, when the price rises. How does household consumption respond to changes in

economic resources? Does the response depend on the nature and duration of the changes? Do

anticipated income changes have a different consumption impact than unanticipated shocks? And

do transitory income shocks have a lower impact than permanent ones? These questions are crucial

for understanding consumers’ behavior and to evaluate policy changes that impacts households’

resources. Indeed, in virtually all countries consumption represents more than two thirds of GDP,

and knowledge of how consumers respond to income shocks is crucial for evaluating the

macroeconomic impact of tax and labor market reforms as well as for the design of stabilization

and income maintenance policies. The income effect is a part of consumer choice theory which

relates preferences to consumption expenditures and consumer demand that expresses how

changes in relative market prices and incomes impact consumption patterns for consumer goods

and services. When real consumer income rises, consumers will demand a greater quantity of

goods for purchase. The income effect describes how the change in the price of a good can change

the quantity that consumers will demand of that good and related goods, based on how the price

change affects their real income.

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How Income Changes Affect Consumer Choices

Background of the Study

The impact of economic, demographic, cultural, and psychological factors on consumption

has been the focus of many studies. As a result, we only look at a few of the studies that are similar

to this one, in which the effects of changes in income on household consumption were studied.

The most important demographic factors affecting consumption expenditures are

household size, number of children, age of consumer, marital status, place of residence, education

level and profession, population growth rate, etc. in the country. These factors affect household

consumption decisions in different level. For example, consumer's profession and level of

education create the need and desire for certain goods. It is thought that households with higher

education level consume more fruits and vegetables than others (Mancino et al., 2004).

The biggest factor affecting household consumption is income. So, there are many studies

analyzing the relationship between income and consumption in different countries. Christopher D.

Carroll, in his study in the United States, investigated the effect of expected lifetime income on

consumption and found that consumption was closely related to projected current income, but

unrelated to predictable changes in income (Carrol, 1992).

Friedman argues that consumers' decisions are influenced by their current income, as well

as their expected future income (Meghir, 2004). Since income of individuals is permanent and

temporary, these types of income affect consumption habits. In general, individuals are consuming

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How Income Changes Affect Consumer Choices

according to their permanent income, which refers to the average income flow expected by

individuals throughout their life (Yuzbaşıoğlu, 2018)

Changes in the level of consumption as a result of rising prices for goods and services are

one of the important issues. Because price is an important means for regulating and planning

consumption, as well as preserving food indecency of household and reducing poverty in a country

(Haq et al., 2011). Generally rising prices for goods and services, as a rule, lead to a decrease in

household consumption or a decrease in the quality or an increase in household expenditures. This

effect observes particularly in households that spend a large part of their income on consumption,

resulting in higher food inflation (McGranahan, 2008).

Methodology

This part gives an outline of research methods that were followed in this study. It provides

the information on the participants that is the criteria for inclusion in the study, who the participants

were on how they were sampled. The researcher describes the research design that was chosen for

the purpose of the study and the reason for this choice

This study used the qualitative research methodology. Qualitative methods implies an

emphasis on the qualities of entities and on process and meaning that are not experimentally

examined or measured in terms of quantity amount intensity or frequency. Qualitative research

stress the socially constructed nature of reality, the intimate relationship between the researcher

and what is study and the situational con traits that shape inquiry such researcher emphasize the

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How Income Changes Affect Consumer Choices

value-laden nature of inquiry. Qualitative research was used in this study since the researcher

general objective is to find out How income Changes Effect Consumer Choices, in which it can be

express in a descriptive form.

We choose the Non-probability Sampling method, specifically the convenience sampling in

which in these types of research, the aim is not to test a hypothesis about a broad population, but

to develop an initial understanding of a small or under-researched population. It is the most

commonly used sampling technique as it’s incredibly prompt, uncomplicated, and economical. In

many cases, members are readily approachable to be a part of the sample.

A closed- ended online survey questionnaire was used in the study where in it is a qualitative

research method. It is a positivist research method, it includes the low level of involvement of the

researcher and high number of respondents. An online survey questionnaire is a series of question

asked to individuals through online to obtain statically useful into about a given topic. When

properly constructed and responsibly administered, questionnaire form become a vital instrument

by which statement can be made about specific groups or people or entire population.

The online survey questionnaire consist of two parts first is the personal data which

includes the age, sex, address, and the second part is the closed-ended questionnaire which the

respondents will answered, in which all the problems and questioned by the researcher are written

on it. The last instrument used by the researcher was a tally sheet to consolidate all the data that

were gathered from the respondents.

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Result

Table 1. Frequency and Percentage Distribution of Age

Age Frequency Percentage

18 years old and below 41 82%
18 to 25 years old 4 8%
24 to 45 years old 4 8%
45 years old and above 1 2%
Total 50 100%

Table 1 shows the results of the survey questionnaire of the demographic profile in terms

of age of the respondents. The respondents who's age range from 18 years old and below dominated

the results having 41 which is 82% in total. Respondents whose age range from 18 to 25 years old

and 24 to 45 years tied both in 4 which is 8% individually and last is the 45 years old and above

who has 1 respondent equivalent to 2%.

Table 2. Frequency and Percentage Distribution of Gender

Gender Frequency Percentage

Male 16 32%
Female 33 66%
Prefer not Say 1 2%
Total 50 100%

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Table 2 shows the Frequency and Distribution of the demographic profile of the

respondents in terms of Gender. Majority shows female respondents who has 33 which is

equivalent to 66%. And the male respondents which has 33 and is equivalent to 32%.

Table 3. Frequency and Percentage Distribution of Marital Status

Marital Status Frequency Percentage
Single 46 92%
Married 4 8%
Widowed
Separated
Total 50 100%

Table 3 shows the Frequency and Percentage Distribution of the demographic profile of

the respondents in terms of their Marital Status. Table shows the respondents single status

dominated the results which has 46 and is equivalent to 92% and the rest which were married who

has 4 respondents and is equivalent to 8%.

Table 4. Frequency and Percentage Distribution of Social Status

Social Status Frequency Percentage
Student 37 74%
Working student 3 6%
Employed 6 12%
Self-employed 4 8%

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How Income Changes Affect Consumer Choices

Total 50 100%

Table 4 shows the Frequency and Percentage Distribution of the respondents in terms of

their Social Status. Majority of the respondents which has 37 and is equivalent to 74% belongs to

the Students. Next is for the Employed who has 6 responses and is equivalent to 12%. Self-

Employed who has 4 respondents and is 7% in equivalent and the least are the working students

who only has 3 respondents and is 6% in equivalent.

Table 5. Frequency and Percentage Distribution by their/their Family's Monthly Income

Monthly Income Frequency Percentage
30,000 and below 45 90%
30,0001 to 45,000 4 8%
45,001 to 100,000 1 2%
100,0001 and above
Total 50 100%

Table 5 shows the Frequency and Percentage Distribution of the respondents in terms of

their/their family's monthly income. The table’s shows 45 of the respondents receives income

ranging from 30,000 and below which is equivalent to 90%. Next is 30,001 to 45,000 who has 4

respondents and is 8% in equivalent and the least which only has 1 respondent that receives

income ranging from 45,001 to 100,000 and is equivalent to 2%.

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Table 6. Frequency and Percentage Distribution by their /their Family's Weekly Allowance

Weekly Allowance Frequency Percentage

1,500 to 2,000 21 42%
2,001 to 3,500 14 28%
3,501 to 4,000 7 14%
4,000 to 4,500 8 16%
Total 50 100%

Table 6 shows the Frequency and Percentage Distribution of the respondents by

their/their family's weekly allowance. Majority shows respondents whose weekly allowance

ranges from 1,500 to 2,000 has 21 and is equivalent to 42%. Next is the 2,001 to 3,500 who has

14 respondents and is equivalent to 28%. Third is the 4,501 to 5,000 ho has 8 respondents and is

equivalent to 16% and the last who has weekly allowance of 3,501 to 4,500 has 7 respondents

and is equivalent to 14%.

Table 7. Frequency and Percentage Distribution in some changes in their purchasing

decision regards to the changes in their income.

When your income decreases:

Frequency Percentage
Buying or Availing less or 30 60%
cheaper goods and services

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Lowering your daily, weekly 20 40%

or monthly allowance
Less consumption of products 13 26%
and goods

When your income increases:

Frequency Percentage
Being able to buy all the 19 38%
things you want
Spending your money in a not 12 24%
necessary way
Buying or Availing products 21 42%
and services beyond your
budget
Other Specify
Buying Necessity Only 1 2%
When an Accident Happened 1 2%
Saving 1 2%

The graph shows the percentage of respondents’ responses on changes in purchasing

decision regards to the changes in income. It can be observed regarding on income decreases the

percentage of Buying or Availing less or cheaper goods and services got thirty (30) of the

respondents (60%) , next is the Lowering your daily, weekly or monthly allowance got twenty

(20) of respondents which is equivalent to 40% and Less consumption of products and goods with

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How Income Changes Affect Consumer Choices

thirteen (13) respondents or (26%). Regarding on income increases the percentage of Being able

to buy all the things you want got nineteen (19) respondents which is equivalent to 38%; Spending

your money in a not necessary way got twelve (12) respondents or 24%; Buying or Availing

products and services beyond your budget got twenty-one (21) respondents or 42% and the

respondents answered the Buying necessity only, when an accident happened and I go for saving

got 1 respondent which is equivalent to 2%. As results, regarding on income decreases the

percentage of Buying or Availing less or cheaper goods and services got the highest percentage

and then regarding on income increases the Buying or Availing products and services beyond your

budget got the highest percentage. The respondents’ perceptions regarding to the changes in

income have a huge effects on purchasing decision of a consumers/respondents.

Table 8. Frequency and Percentage Distribution in these selected products, what are some

of the products they usually buy or avail when changes in income occurs.

When it comes to essentials:

Frequency Percentage

Water and electricity bills 35 70%

Shelter or House bills 18 36%

Food and beverages 37 74%

Clothing's 15 30%

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Medicine 19 38%

The table shows the frequency and the percentage from the 50 Respondents result that

answered the question in these selected product, what are the some of the products that they usually

buy or avail when changes in income occurs the table shows that when it comes to essentials Food

and beverage has a high percentage with 74% and 37 frequency choose that when there is a change

of income they will choose these to purchase. The second highest water and electricity bill with

70% and 35 frequency or choose this kind of product next is the shelter or house bills with 36%

and 18 frequency the second to the least is the Medicine with 38% and 19 frequency choose this

kind of product. And the least with product with 30% and 15 frequency choose clothing as their

very least to purchase as an essential product when there is a changes of income.

When it comes to non-essentials:

Frequency Percentage

Alcohol and beverages 7 14%

Internet/Wi-Fi 29 58%

Jewelries/Accessories 7 14%

Skin Care and Make-up 13 26%

Products
Mobile phones Gadgets, and 18 36%
other Technologies

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And when it comes for the non-essentials the mostly product to purchase when there is a

change of income is the Internet/Wi-Fi with a percentage of 58% and 29 frequency the second

most purchase product is the Mobile phones Gadgets, and other Technologies has a 36% and

frequency of 18 next is the Skin care and Make-up products has a 26 % with a frequency of 13 and

for the least product Alcohol beverages and Jewelries/Accessories have a same result of frequency

and percentage with both 14% and 7 Frequency these are the non-essential product that are least

to purchase when there is a change of income.

Table 8. Frequency and Percentage Distribution in having an increase of income how will

they able to shift their budget constraint.

Frequency Percentage

By purchasing goods with 4 8%

higher price than your initial
budget.

By purchasing more goods 20 40%

with same price of your initial
budget.

Purchase only what is in the 26 52%

initial budget.

The table shows the frequency and the percentage from the Respondents results that answer

to the question in having an increase of income how will you able to shift your budget constraint,

the table shows when it comes to purchase only what is in the initial budget has a highest

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percentage which is 52%, the second highest is by purchasing more goods with same price of your

initial budget has 40% next is the lowest by purchasing goods with higher price than your initial

budget has 8%.

Conclusion

Based on the results from the survey questionnaire by the respondents in terms of their

demographic profile, respondents whose age range from 18 to 25 years old dominated the result

which has 41 respondents and is equivalent to 82%, majority of the respondents are female which

has 33 and is equivalent to 66%. In terms of their marital status, majority of the respondents are

single which has 46 responses and is equivalent to 92% and in terms of their social status,

respondents who are Student's dominated the results which has 36 and is equivalent to 72%.

As for the results, it shows that majority of the respondents only receives their or their

family's monthly income that ranges from 30,000 and below that also results respectively to their

weekly allowance that ranges from 1,500 to 2,000.00. This only means that majority of our

respondents only has low income and low budget for the expenses of the whole family.

From the results of the survey, majority of the respondents when it comes to changes in

their income tends to buy or avail products, goods and services that are less cheap when their

income decreases. As for the increase in their income, majority of the respondents tends to buy or

avail things that are beyond their budget.

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How Income Changes Affect Consumer Choices

Based on the results, majority of the respondents prioritize spending their money on Foods

and Beverages and next is the Water and Electricity when their income decreases. Internet or Wi-

Fi was spend by the majority of the respondents when their income decreases. This also become a

priority since many people affected by the pandemic and most people tend to do online or work

from home or students with online classes.

From the results, when it comes to shifting their budget when their income increases,

majority of the respondents have stated that only purchase what is in the initial budget. This only

means that respondents are careful on what and how are they going to spend their money to.

Appendices

Survey Questionnaire:

Name:

Email Address:

Age:

o 18 years old and below

o 18-25 years old

o 25-35 years old

o 35-45 years old

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How Income Changes Affect Consumer Choices

o 45 years old and above

Gender:

o Male

o Female

o Prefer not say

Marital Status:

o Single

o Married

o Separated

o Widowed

Social Status:

o Student

o Working-Student

o Employed

o Self-Employed

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How Income Changes Affect Consumer Choices

1. How much is your/your family's monthly income?

o 30,000 and below

o 30,001-50,000

o 50,001-100,000

o 100,000 and above

2. How much is your family’s weekly budget?

o 1,500-2,000

o 2,001-3,500

o 3,501-4,000

o 4,001-5,000

3. What are some changes in your purchasing decision regards to the changes in your

income?

𝐖𝐡𝐞𝐧 𝐲𝐨𝐮𝐫 𝐢𝐧c𝐨𝐦𝐞 𝐝𝐞𝐜𝐫𝐞𝐚𝐬𝐞𝐬:

o Buying or Availing less or cheaper goods and services

o Lowering your daily, weekly or monthly allowance

o Less consumption of products and goods

𝐖𝐡𝐞𝐧 𝐲𝐨𝐮𝐫 𝐢𝐧𝐜𝐨𝐦𝐞 𝐢𝐧𝐜𝐫𝐞𝐚𝐬𝐞𝐬:

o Being able to buy all the things you want

o Spending your money in a not necessary way

o Buying or Availing products and services beyond your budget

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How Income Changes Affect Consumer Choices

4. In these selected products, what are some of the products you usually buy or avail

when changes in income occurs?

𝐖𝐡𝐞𝐧 𝐢𝐭 𝐜𝐨𝐦𝐞𝐬 𝐭𝐨 𝐞𝐬𝐬𝐞𝐧𝐭𝐢𝐚𝐥𝐬:

o Water and Electricity bills

o Shelter or House bills

o Foods and Beverages

o Clothings

o Medicines

𝐖𝐡𝐞𝐧 𝐢𝐭 𝐜𝐨𝐦𝐞𝐬 𝐭𝐨 𝐧𝐨𝐧-𝐞𝐬𝐬𝐞𝐧𝐭𝐢𝐚𝐥𝐬:

o Alcohol and Beverages

o Internet / WiFi

o Jewelries/Accessories

o Skin care/ Make-up Products

o Mobile Phones, Gadgets, Other Technologies (Laptops, Computers, Ear /

Headphones, etc.)

5. Having an increase of income how will you able to shift your budget constraint.

o By purchasing goods with higher price than your initial budget

o By purchasing more goods with same price of your initial budget

o Purchase only what is in the initial budget

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