Making a major purchase - Essay Example

Topic Module There are several factors that affect the consumer behavior in decisions relating to a measure purchase. Most of these factors are economic in nature because it is the major field of research when it comes to buying or selling and involves the market mechanism. Apart from many economic factors, one can say that non-economic forces also exist in the person’s decision of making a purchase. These factors in combination with economic factors tend to have an impact on consumers when a decision relating to a measure purchase is made.

The demand for a good or services, in this case a house, comes from the consumers’ willingness and ability to make a purchase. In case there is no willingness and ability there will be no demand for a major purchase and chances are that the purchase will not be made. So, one can say that the demand and willingness to make a purchase are the key factors when it comes to making a purchase. Willingness of a consumer comes from the need for a good or services. Hence, willingness stems from various other factors which are social, behavioral, cognitive and affective in nature.

Social factors might be that an individual is planning to get married and wants to start a new life, and so he needs a new house. Behavioral factor would be that the advertising of the houses has pressed consumers that he needs a home, and now he is looking for one. Cognitive factor would be that an individual thinks that he needs a house and thinks it as a necessary part of his life. Hence, he would go for active searching of a house. Affective factor be that he has seen other people in his social circle purchasing a house and he wants to show them he is no less to them and therefore he wants to buy a house of his own.

All of these factors contribute to the consumer’s willingness to make a major purchase. However, once consumers are through that, there should be also be some ability for consumers to make the purchase. The ability of consumer is simply whether or not he has money to make the purchase or not. Willingness alone would not create a demand for a purchase. It should always be backed by the ability in order to create an effective demand for a major purchase. Hence, an important principle of demand-side economics is that consumers should show their ability and willingness and both at the same time in order to register an effective demand in the system for a major purchase.

(Chrystal & Lipsey, 2003) The other factors are more economic in nature. The decision to make a major purchase depends upon the consumers’ perception of marginal costs and benefits of making a purchase and how much utility are they going to yield if they go ahead of their decision of making a purchase. Marginal benefits is simply whether the money spent on the purchase would yield the same amount of utility, or whether the utility yielded would be less than the money spent. It will be extremely difficult to quantify utility and many different economics would differ in the way they quantify utility element.

Similarly, another important factor would be the marginal costs associate with the purchase. Marginal cost is the amount of money spent in obtaining utility. It should be in equality with Marginal benefit for the decision to be worthwhile. If it is found that Marginal Cost is greater than Marginal benefit then it is better for an individual to not to make a purchase. Similarly, if Marginal benefit is greater Marginal Costs, then the individual should continue making the purchase. By doing this, Marginal Benefit would come down with each new purchase and Marginal Cost would rise with the each new purchase.

A rational consumer would continue to do this until his marginal benefits and marginal costs are equal (Brue & McConnell, 2006). This is a point of equilibrium where extra purchase would not yield any benefits and any cut down in purchase expenditure would not be feasible as the utility curve will not be at its peak. The marginal benefits that can be associated with buying a house would be comfort, ease of living, social status and a person’s start of a new life. The marginal costs would be the amount that an individual pays for the house.

There would also be some external costs and benefits such as cost of pollution, cost of increase in population density in the area where the house has been purchase and the cost of congestion in the area. Similarly, external benefit will also exist in the form of tax money collected by government, more domestic employment provided etc. There should be a net benefit or equality in the social and private costs and benefits for the decision to go ahead. There will also be implicit costs that would exist in the decision such as opportunity costs of other purchase that could have been made with the same amount of money etc.

In any case, the decision would only go ahead until and unless there is a net benefit to the individual and the society or at least there is normal profit from the decision that an individual is about to make. The analyses done here clearly show us the rational approach that is adopted by individuals in making important decisions of their life such as making a major purchase. (Sloman, 2003) From this paper, we conclude that most of us are rational beings. We make decisions not only that are economic, but we also tend to go by social and emotional factors that affect our decisions.

In the end, however, it all boils down to making the decision that has more positive than negatives and that is more beneficial for the society as a whole. Works Cited References: Brue, S., & McConnell, C. (2006). Economics. New York: McGraw-Hills. Chrystal, A., & Lipsey, R. (2003). Economics. Oxford: Oxford University Press. Sloman, J. (2003). Economics. New York: Prentice.