My income and the price of goods and services greatly determine my purchasing decisions. Depending on the degree of necessity, I am able to determine the quantity of a product or service to purchase if there is a change in price or my income. Necessity and luxury goods affect my purchasing patterns differently whenever there is a change in income or price. The quantity of necessity goods that I consume is not affected by any changes in price or my income. However, whenever there is a change in my income or price, I usually change the quantity I consume of a luxury good (Maria, p.68).
For example, one of the goods that I purchase on a daily basis is milk. I consider milk to be a necessity. Therefore, whenever the price of milk increases, I am forced to increase my expenditure on milk. The increase in my expenditure on milk is meant to ensure that I continue to consume the same quantity of milk even after its price increase. However, whenever my income increases or the price of milk decreases, I still maintain the same quantity of milk consumption.
I consider going to the cinema to be a luxury. Whenever my income decreases or the price of cinema tickets increase, I usually reduce my frequency of going to the cinema. However, whenever my income increases or cinema fees decrease, I usually use my increased purchasing power to go to the cinema more frequently.
Works Cited
Hirshleifer, Jack, Amihai Glazer and David Hirshleifer. Price Theory and Applications: Decisions, Markets and information. New York: Cambridge University Press, 2005.
Moschandreas, Maria. Business Economics. London: Cengage Learning EMEA, 2000.
