Descriptive : Personal Expenditures and Determinants - Statistics Project Example

Descriptive statistics: Personal expenditures and determinants Program: Supervisor: August 19, Descriptive statistics: Personal expenditures and determinants Introduction Consumption, measurable through quantities of goods and services that individuals demand for in a period, is one of the aspects of economics, and it depends on factors whose understanding may be significant to consumers, producers, and intermediaries. Statistical application to understanding distribution of levels of consumption and associated factors is significant to business organizations for policymaking and for decisions on levels of production (Lee, C., Lee, J., & Lee A., 2013). Understanding distribution of levels of income across a market segment, for example, may inform business decisions on suitable segmentation and types of products that different segments may prefer. Consequently, an organization can meet expectations among all target consumers and at the same time optimize its sales volume and profitability. Similarly, understanding statistics on consumption helps business organizations in planning their productions, an aspect that affects wastes in storage cost, and goods that expire before sales. Understanding demand is also important for informed decisions among producers and consumers through generating information on alternatives that can be compared for decision-making (Apte, 2009). For producers and aspiring producers, understanding distribution in levels of expenditures for different classes of goods and services may indicate more profitable ventures for exploration while a consumer’s understanding of trends in major expenditures could develop awareness of possible utilities for exploration. Understanding that others spend significant amount of money on entertainment may, for example, be an indicator that entertainment is beneficial to professional and personal health and influence a consumer’s opinion on entertainment expenditure level. Expenditure and its determinants are also important for theoretical understanding of relationship between demand and its associated factors. According to law of demand, level of demand for a commodity is inversely proportional to the commodity’s price, should all other factors be kept constant (Friedman, 2009), and this establishes a basis for studying microeconomic factors such as demand and its relationship with other factors, to ascertain the theory, based on changing environments. Studying demand and its associated factors also offers a basis for extending the theory of demand to explaining correlations among the factors to demand such as levels of income, fraction of income spent on different types of utilities (Chauhan, 2009), and “cultural habits and behavior” that are reflective of demographic factors such as age and level of education (Whitehead, 2014). Consequently, significance to personal and professional interests, as well as to theoretical interest among academicians and economic researchers inform selection of consumption and its determinant as a topic for study. Necessity goods are however independent from these factors (Chauhan, 2009). Level of consumption, or demand, depends on other economic factors such a consumer’s level of income. Theoretical level of consumption of a commodity, with other factors kept constant, is expected to be directly proportional to the consumer’s income. Other factors such as taste and preference, which are factors of culture and age among other demographic factors, also influence levels of consumption of commodities (Whitehead, 2014). Price of other commodities, according to Myers (2013) also determines consumption levels of commodities and this has varying effects. Changes in prices of substitutes have direct effects on consumption of a commodity while changes in prices of complementary commodities have direct effects. Expectations and government policies are other factors to consumption levels. Expected fall in prices due to seasonality and expected release of better commodities in the future are for example likely to reduce consumption level at a time. Conversly, expected government regulations that may liberate access and lead to lower prices is likely to reduce point level of consumption due to postponed demand (Myers, 2013). This study therefore investigates consumption levels of various classes of commodities among a sample factors to demand. Survey Questionnaire The following set of questions formed the study’s questionnaire. 1. What is your monthly income? 2. How many sources of income do you have? 3. How much do you save out of your monthly income? 4. How many people are there in your household? 5. Within your household, how many people have a regular income? 6. How many direct dependants do you have, whether within your household or not? 7. How many credit cards do you operate? 8. How much do you spend on food, in your household? 9. How much money do you spend on your household’s clothing? 10. How much do you spend on you household’s entertainment? 11. How much do you spend on your household’s healthcare? 12. What is your age? 13. What is your level of education, in terms of years in an education system? 14. How many years have you spent in employment, i.e. for what duration have you been under reliable source of income? The study targets the entire population of consumers in active employment, with focus on youths, the middle aged, and the elderly population into retirement. Youths, for this study, include individuals in college or outside college, but between 19 and 36 years. Those between 36 years old and 50 years old are considered middle aged, while those with a minimum age of 50 years are considered elderly. This led to stratification with respect to age, to ensure a representative sample with respect to active consumers. Sampling was however blind to gender and profession. Data was collected on the variables shown in the table below. Table 1: Studied variables No. Variables 1 Monthly income 2 Number of sources of income 3 Monthly savings 4 Household size 5 Number of other income earners in the household 6 Number or dependants 7 Number of credit cards owned 8 Food expenditure 9 Clothing expenditure 10 Entertainment expenditure 11 Healthcare expenditure 12 Age 13 Education level 14 Years in employment Results Analysis focuses on monthly income, amount saved, expenditure on food, expenditure on entertainment, and expenditure on health care. Monthly income Consumers’ income is a key determinant of ability to purchase and is therefore significant to business organizations and consumers’ forecasting of consumption. The following graph shows distribution of the sample’s monthly income. Graph 1: Monthly income distribution This can similarly represented in a histogram as shown below. Graph 2: Histogrm for distribution of monthly income Based on the distribution, a majority of the participants has their earnings ranging between $ 2000 and $ 5000 per month and this information can help competitors and potential new entrants to estimate viability of operations in the target location, based on population size. Amount saved Amount that people can save from their income indicates their ability to meet their immediate needs and ability to expand consumption if need arise. Higher savings identifies existing ability for extra consumption. Below is the graph of distribution of monthly savings by the participants Graph 3: Monthly savings by cases This can also be represented in a histogram as shown below Graph 4: Histogram for distribution of monthly income A majority of the participants save between $ 201 and $ 300 per month, though this can be safely extended to between $ 101 and $ 400 per month. Consequently, there exist a potential for stimulating demand in the target population, either through introduction of new products or through marketing existing products. The distributions, by cases, for income and savings, are however asymmetrical, and this suggests that savings does not depend on an individual’s income. Expenditure on food Understanding trends in the different types of expenditures informs about consumers’ preferences by industry, based on necessity of associated products or taste. The following chart shows distribution of the participants’ monthly expenditure on food. Graph 5: Monthly expenditure on food The data can also be presented in a histogram as shown below. Graph 6: Histogram for distribution of food expenditure Even though some individuals report as high as food expenditure of more than $ 14000, a majority of the investigated report between $ 200 and $ 999 expenditure on food. Observed significant savings however suggest possible expansion of the food consumption range. Expenditure on entertainment As an alternative expenditure, entertainment may be a substitute to food, in as much as marginal expenditure on food is not a necessity. The following chart shows its distribution. Graph 7: Monthly expenditure on entertainment The following is the histogram for entertainment expenditure. Graph 8: Entertainment expenditure Range of expenditure on entertainment, between $ 101 and $ 400, is less than that for expenditure on food and this suggest greater demand for food, as a necessity, that could also be contributing to high costs. The information suggests priority of food consumption to entertainment and therefore higher demand in the food industry than in the entertainment industry. Expenditure on health care Health care is another alternative expenditure to food and below is its distribution for the participants. Graph 9: Health care expenditure by cases This can also be expressed as a histogram as shown below. Graph 10: Histogram of distribution of health expenditure Expenditure on healthcare also concentrates at lower values, between $ 101 and $ 500, compared to the range for expenditure on food. the range is however closser to that for enternment expenditure. Conclusion The study aimed at investigating trend in income, savings, consumption of various categories of goods, and demographic factors of a sample of consumers. A majority of the investigated group post earnings of between $ 2000 and $ 5000 and even though most of the consumers save part of their income, the savings do not depend on income. The histograms for income and food expenditure are however symmetric and this suggests a direct proportionality. Even though food is a necessity, some types are not and these could explain the proportionality with income. The histogram for food expenditure is further symmetrical to that for health expenditure, an observation that is consistent with expectations that the two categories are necessities. Entertainment, however, has a different trend, mostly probably because of scarcity of resources and because it is not a necessity. Food, therefore, among the three expenditures, commands the largest percentage of income. Consumers who may want to manage their expenditures, and producers and intermediaries whose interest is to venture in sectors with high turnover and profitability should therefore focus on it. References Apte, D. (2009). Statistical tools for managers (using Ms Excel). New Delhi. Excel Books India. Chauhan, S. (2009). Microeconomics: An advanced treatise. New Delhi: PHI Learning Pvt. Ltd.. Friedman, M. (2009). Price theory. Brunswick, NJ: Transaction Publishers. Lee, C., Lee, J., & Lee A. (2013). Statistics for business and financial economics. Piscataway, NJ: Springer Science & Business Media. Myers, D. (2013). Construction economics: A new approach. New York, NY: Routledge. Whitehead, J. (2014). Microeconomics: A global text. New York, NY: Routledge. Read More