The two main players in economic activity are the producers and
consumers. Though the discussion is going to focus on the
analysis of
consumer demand however to mention the producers cannot be avoided since he is a part of the economic activity. The predominant economic system in the Philippines is free enterprise (also known as market economy, Laissez faire or capitalism). It is an economy in which there is the presence of economic freedom, free competition and profit motive. In this free enterprise economy the
consumers’ desires exercise the ultimate control. And because of this entrepreneur must know on what goods to be produced and in what quantities they shall be produced. Consumers are powerful, sometimes capricious, (unpredictable) monarch. Producers are always tempted to produce goods which consumers are willing to pay a price that will cover the total cost of production plus a profit.
In economics, demand does not mean mere need or desire. It is, rather, a desire for particular goods backed up by sufficient purchasing power. The desire must be backed up with the money that the consumer is willing to spend on the goods or commodity. How much a consumer will buy and what price he will be willing to pay depend on a number of factors like: income, tastes and preferences, prices of other goods and others.
In our economic system, one of the major objectives why businessmen is in business is to make profit and of course to serve the buying public. He can make profits only by producing goods and services that the people want to buy. It is the consumer who is willing and able to buy who directs production. Consumer directs it by the way he spends his money, the way he allocates his income among different goods and services. Consumer demand is the mainspring of economic activity. Consumers respond differently to a given price cut because consumers have different income levels. A fall in the price of a good has two effects: (1) Consumers enjoy an increase in real purchasing power, they are better off because they can buy the same amount of good for less money and thus have money left over for additional purchases. (2) They will consume more of the good that has become cheaper and less for those goods that are now relatively more expensive. Consumer faces limitations in his quest for maximum satisfaction for some reasons like the amount of his income. An increase in income tends to increase the amount consumers are willing to buy of most goods. The price of the goods the consumer prefers is another issue that will limit satisfaction. A higher price for a good reduces the consumer’s desired consumption of that good. (this shows why demand curve slope down). Sometimes, consumer’s choices can be affected also by special influences like persuasive advertisement. This creates quick decisions on what to buy and where to buy the goods and services. ***