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How does Economics affect our daily lives?

When we hear the term economics, many of us automatically think of something that university students study before heading off into the fantastic world of business. Did you know that economics actually play a huge role in our daily lives and actually affect many of the things we do on a day to day basis? This article explores how economics impacts the average person as they go about their business:

Supply and cost of everyday products

Business and retail work on a premise of supply and demand – this is also a basic principle of economics. For example, 50 people want to purchase X item, therefore retailer B sells it at Y price – this price fluctuates depending on the demand and other economic factors. What we actually pay for everyday goods such as food, clothes and even petrol is determined by economic factors revolving around supply and demand. These factors could include regulations, business tax, government mandates or even competition.

Debt and disposable income

The state of a nation’s economy can have a huge impact on how much disposable income we have, and how likely we are to fall into debt. During times of prosperity for example and economic growth, the working population often has more disposable income and can afford to purchase luxury goods. Alternatively, if a country is experiencing economic regression, the average person will have less to spend, and governments could tighten up on lending.

Consumer Confidence

If you feel that the economy is unstable and that your job may be at risk, you may have low consumer confidence and are therefore less likely to spend on “luxury” items such as dining out or going bowling for example. This, in turn, can have a negative impact on those luxury industries as they will receive less customer and make less revenue. This is a vicious economic cycle that can affect whole industries.

Savings and interest rates

Interest rates are dictated by the economy and are set by governmental and financial institutes. In short, economics can have a huge effect on your ability to save, and other financial processes such as a mortgage, car finance, and personal loans. When interest rates are high for example, you can earn more from savings accounts, but on the flip side, mortgage repayments will cost much more.

Taxation

Most citizens pay tax – this tax is dictated by economics and the current economic climate of a country and government. During times of need, a government may increase taxes for example in order to raise funds – this, in turn, will mean that the average family will have less disposable income and may even struggle to pay bills. On the flip side, the money you contribute in the form of tax will help fund hospitals, the military and law enforcement forces for example.

As you can see, the world of economics is actually hugely important to our daily lives. The economy of a country has far-reaching consequences and can have a great effect on our quality of life.

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