Monday, August 16, 2010

Globalization and Food Convenience on our own Households

In a world of globalization everything is moving fast.  Philippines being one of the developing countries is not an exception to this fast paced development of the twentieth century. Filipinos’ lifestyles are becoming more and more convenient. Most of us prefer having things done automatically may it be in our household or works. The progressive development in technology affected majority of our consumption which can be simply exemplified by the increase in demand for wireless communication devices over corded phones in our local homes.  Consumption is described as the utilization of economic goods in the satisfaction of wants or utility maximization, and through this household expenditure is generated. Household expenditure is characterized by our spending on two categories: food and non-food. Food expenditure includes food consumed at home and food consumed away from home. Food consumption or expenditure changes as price, income and accessibility to food changes. Consumer food habits, purchase behaviors and consumption pattern today have changed significantly. The demand for food consumed away from home increased dramatically over the years.  Favored food before are now rarely eaten and once only dreamed foods are now a reality. Many of us would like to eat at restaurants or fast food chains than in our own homes. According to a survey done by Euromonitor International (2007), Malaysians can afford to eat away from their homes almost every single day. Their choice of restaurant may vary from full-service restaurants to fast food outlets depending on their budget. It is common among students and dual income earning families to eat out. The reason behind this is that many of us give importance to working productively and avoiding the preparation of food at home since it includes more preparation and time, in simpler sense, many of us are very busy. The opportunity cost of eating outside is lower than eating at home. Other factors such as family size, expenditure on clothing, education, medical care, recreation, transportation and communication, utilities, taxes and other income should also be considered when determining when eating outside. There are also other factors that are being considered when eating outside such as taste, nutritional content, stress, mood, biases and human belief. But the latter mentioned factors are not easily observed therefore it cannot be easily included in the data when making an empirical analysis.

Utility maximization is one of the key topics when discussing consumers’ behavior and spending pattern. It is of great quest how to maximize utility given constraints such as time and income. The theory of consumer behavior states that a consumer will purchase goods that will maximize his or her utility given constraints. The higher the price of the good the lower the demand for that good since there is budget constraint and purchasing of which will decrease the utility of the purchaser or consumer. The model describes the behavior of an individual with relation to the demand, utility and price for a given good. To discuss it further, when an individual has income increase his consumption would also increase, this is called the income effect. An individual will derive its utility through an increase in his consumption considering he is non-satiated.  An increase in the utility would also occur if the individual would purchase goods which are now more expensive than the goods he was purchasing before, the good that he is now purchasing is called a normal good, which is the good that normally consumed after an occurrence of increase in an individual’s income. The good that is no longer consumed is called inferior good, since the individual has higher income meaning lesser constraint he is now able to go to the next level of utility foregoing his old consumption. From previous empirical studies it has shown that utility maximization is not only of consumption itself it has other factors such as time and convenience. 

Though the Income Effect states that an increase in income would mean an increase in consumption, according to the 1857 study of Ernest Engel, he concluded that the proportion of income spent on food declines as income increases, implying that “food is a necessity whose consumption rises less rapid than does income” (Nicholson,1992, p.134). As income increases the allocation for food would be smaller since there would be expenditures that will be prioritized more than food.

The Household Production Theory by Becker states that consumers maximize utility subject not only to the budget constraint but also time constraint. Furthermore, this model assumes that consumers demand not only the food product itself but also the associated benefit specifically convenience to save time in food preparation. (Becker, 1965).  By purchasing meal outside home the consumer is able to derive utility not only by the consumption of food but by the convenience he receives. According to Encarta Dictionary (North America), convenience is the quality of being or making things easy, useful, or the state of increasing comfort, availability of which increases utility since the consumer is able to eat in a faster pace without the need to spend longer time for the preparation.


References:


Barton, Anton P. 1964. “Family Composition, Prices and Expenditure Patterns.” In Economic            Analysis for National Economic Planning, edited by Peter E. Hart, Gordon Mills, and John K.  Whitaker. London: Butterworth.
Becker G. S. A Theory of the Allocation of Time. Economic Journal, 75 (September),             1965. pp. 493-517.


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