Economic Approach to Human Behavior
The economy is a term used to mean the regulation and management of scarce resources in a given organization, community or even a country. Economics can also be defined as the allocation of resources may it be time mental energy or even capital resources to a business venture in view to solve a problem in the society. The economy as a discipline incorporates other discipline that is related and affect the lives of human beings in one way or the other. Economy interact with human behavior in its approach to solving different problems that exist in the society may they be forces of demand and supply (GILLESPIE, 2007).
Human behavior can be defined as any response from an individual as a reaction to his or her surrounding. It can also mean the manner in which an individual conducts himself or herself when faced with a situation in life. These behaviors and reaction are influence of emotions, culture or even genetics , and they may be termed common and other unusual or even unacceptable. Thus, when we come to the economic approach of human behavior we try to understand how economic factors and forces are influenced by human behavior (Douma & Schreuder, 2008). Economics differs from other disciplines due to its integration with social sciences where most human factor fall and thus very related. An economic approach the role played by human behavior influence market forces through the decision making on what commodity to use and which one not to. The forces of demand and supply influence market strength in any country’s economy and it play a major role in trying to dictate the production and supply of goods in the economy. The economic approach recognizes the wealth function of different stakeholders in the economy may they be producers, suppliers and finally the consumers (Becker, 1976).
There are different factors that influence human behavior, which in turn influence how people consume certain goods and enjoy certain services. For any producer, or even a business owner needs to understand is that human behavior normally dictate what commodity to use in a given economy. Social norms are influenced by the society one has grown in and the surrounding area. Culture will influence a lot of what people in a given economic setting will consume. For example, pork is not a favorite meal among the Muslim community and thus as a business entrepreneur opening up a pork joint in a Muslim resident will prove suicidal to the business in due time (Frey, 1999). The culture of people will influence what hey buy and at what given time and thus the forces of demand and supply are influenced mostly by human behavior. For example, Christian will invest a lot of money buying gifts around Christmas and thus the gift business booms around Christmas time and thus a good business person may introduce gift for sale around Christmas to lure more customers and more sales. Economic conditions also affect the demand for a certain good in a capitalistic economy in terms of economic downturn situations. When an economic downturn happens people have less money at their disposal , and thus their purchasing power is reduced and they end up cutting costs when purchasing resulting to less expenditure on basic need. Also during the economic downturn the producers and suppliers usually experience low sales and thus might suffer losses if they had not planned well for the uncertainty; thus they end up cutting costs by laying off some employees and shutting off some production. Economy calls for allocation of scarce resources and offering the best management of these resources and thus every person has to learn how to economize the little that he or she has (Tommasi, 1995).
Different factors affect the demand and supply of goods and service in any economy. People are the most consumers of market goods and thus their supply is influenced by the human behavior. Demand can be defined as a force that drives a consumer to desire for a certain product and the willingness to pay for the price of the good or service. The following factors affect the demand for a certain good. Product price; Since demand is the desire for a consumer to pay a certain price for a given good or service this will offer the satisfaction for his or her desire. Price determines the quantity of a product that customers will be willing to buy given the price of the product. Any increase in price of a product will adversely affect the quantity demanded in that the quantity will fall while a reduction in price will lead to an increase in quantity demanded. Price of related goods affects the quantity demanded of a product in that any increase in price of related products will increase demand for the product. It mostly applies to related goods that can be used as substitutes. In the price of the substitute rises, the quantity demanded lowers and people to substitute the good with another and thus the quantity of this product will rise (Crouch, 1979).
The income of the consumer is another factor that will affect the demand for a certain good or service in any market. If the income, of a consumer is high, then his or her purchasing power is high and thus he or she can have a range of different products to purchase. If the income is low his or her purchasing power is lowered and thus can only purchase a good or service close to his or her income., Taste and preference is another factor that influences demand for a given product. If a consumer has a unique taste for taste then he or she can only purchase a commodity of his or her choice over the other., Preference is more influenced by the behavior of the consumer and prior knowledge about a given product and thus he or she consumes the product that suits his needs only. Advertising and commercial adverts also influence demand for a given product. If a producer undertakes product development through advertising the community learns of the offered products and thus make their decision regarding the product. The better the advertisement the more people will like to be associated with the product and thus encourages the sales of the product (Hurtado, 2005).
Supply can be defined as the quantity of given good or service that producers are willing to offer in the market at a given price with all the other factors kept constant. Many economic decisions are made by management in a given business where the stakeholders gear towards maximizing profit for the organizations. This supply for any given good or service in an economy is influenced by the price of the commodity in the market. Producers are willing to supply more goods and services in the market if the price is high and favorable. Price of related products affects the supply of a given product in that the consumer will purchase the product with a competitive price and thus related product prices are dictated by prices on the market. Consumers’ purchasing power is influenced by market forces and economic conditions and thus producers must keep changing their production process to suit the best production process that is cost effective. Price of inputs influences the quantity supplied in any market due to any increase in input prices will be reflected in the price of the product. If there is a decrease in the price of inputs the price of the finished product falls and this in turn influence demand forces in the market. The quantity of goods or services supplied in a market by producers is also influenced by technology. Better technology improves the production process and efficiency are enhanced and the production cost is lowered thus increasing the quantity supplied (Spiegel, 1991).
In economics, producers are geared towards maximizing their profits through sales and reduced operating costs and, on the other hand, consumers want to have the best products at the lowest prices and thus market equilibrium is reached. market equilibrium occurs when the forces of demand for a given product equal the forces of supply for the product. Therefore, analysis of human behavior is crucial when making decisions about market forces by producers and suppliers of commodities. Market equilibrium influences consumer decisions regarding a given good or service and its normally affected by individual behavior. Economic conditions also affect the demand for a certain good in a capitalistic economy in terms of economic downturn situations. When an economic downturn happens people have less money at their disposal , and thus their purchasing power is reduced and they end up cutting costs when purchasing resulting to less expenditure on basic need. Also during the economic downturn the producers and suppliers usually experience low sales and thus might suffer losses if they had not planned well for the uncertainty; thus they end up cutting costs by laying off some employees and shutting off some production (Peterson, 2000).
For any given organization to be successive, it must incorporate the human aspect of its operations. The human provide labor resources to the operation of the organization and thus the behavior of each individual should be kept in check for the organization to achieve its goals. Proper motivation for the organization employee should be encouraged, be it through proper training or providing a better remuneration package for the labor force. Conflicts in the organization should be resolved using a clear mechanism as they might derail the operations of the company and lead to poor results. Human behavior in any economy is of paramount influence as it incorporates both consumers and suppliers. Thus, the management should learn how consumers behave and their consumption behavior so as to increase their suitability to the market. A clear strategic location will help consumers to associate with a favorable product. Proper advertising for the company products will help offer a significant knowledge to consumers and thus an increase in sales of the advertised products in the market. Management of any company should have a lot of information about market force’s existence of their products and this will be crucial in decision making and product development (Wagner, 2003).
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