Economics Review Essay

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In a market economy, consumer sovereignty is when the consumers decide what to produce by exercising their freedom to choose their purchases
Due to forms of business behaviour, consumer sovereignty can be reduced by marketing, misleading or deceptive conduct, obsolescence and monopolistic behaviour
All income in the economy must be either saved or consumed, this is shown by the formula
“Disposable (after tax) income or Y = Consumer expenditure or C + Savings or S
Consumer savings can be influenced by a variety of factors such as personality, culture, expectations, future plans, tax policies and availability of credit, but the two main factors are income and age
Someone who earns a higher income compared to someone who earns a lower income has a larger propensity to save (APS) and a lower propensity to consume (APC). As income in the economy increases, so will the savings and consumptions. Usually the savings rise faster than the consumptions
Average propensity to save (APS) = savings/income
Average propensity to consume (APC) = consumer expenditure/income
The consumption function diagram compares the level of consumption and the income of an individual. The slope of the diagram is the Marginal propensity to consume (MPC)
The MPC is every extra dollar of income that goes into consumptions
The life cycle theory states that young people tend to spend due to their lack of skills and income and they even borrow money. But as they start to earn more money they tend to

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