The economy and business - EdexcelChanging levels of consumer income

Income is money that is received either from work or from investment. The amount of income someone earns will influence how much they spend.

How increases in consumer income affect businesses

As consumers’ incomes increase, people have more money to spend. This means that demand for many goods and services will increase as consumers look to spend their extra money. They might buy upgraded versions of products they already have, eg a new car, or take an expensive holiday. Businesses will expect to sell more of these luxury goods and services, so they will produce more, perhaps employing more staff.

How reductions in consumer income affect businesses

If consumers’ incomes fall, people will have less money to spend. They will buy fewer goods and services, as they will make do with what they already have. When they do spend money, they may buy cheaper alternatives, such as supermarket own-brand products or second-hand items. Businesses will expect to sell less when this happens, so they will plan to reduce the amount they produce, possibly making staff redundant.

Not all businesses are affected in the same way

Not all businesses will see demand for their products change in this way. The effect of a change in consumer income will depend on what a business sells. For example, pound shops that sell products at discounted prices often see sales increase when consumer incomes fall.