The Importance of the Supply Factor in Consumption
No.150
April 2003
Senior Associate Seiji Shindo
ABSTRACT
Amidst the continuing recession under the prevailing pressures of deflation, it is vital for the Japanese economy to tackle the structural gap in supply and demand. The factors behind declining consumption are threefold: (1) declining consumer expectations and growing risks, (2) problems in household balance sheets, and (3) shortage of goods and services that bring satisfaction to consumers. This investigation focuses on the third factor, one that has not attracted much attention in the past.
Based on data gleaned from annual reports on the consumer price index and on the Family Income and Expenditure Surveys, consumer spending is analyzed and examined by dividing it into two categories: basic consumption-defined here as the minimum necessary for a reasonable, human lifestyle-and selective consumption, or consumption that serves an important role in enriching our lives or in fulfilling personal values. This analysis yields the following insights:
- In analyzing consumer spending, it is important to make a distinction between basic consumption and selective consumption. It is also apparent that trends in selective consumption have a much stronger relationship with aggregate consumption than do trends in basic consumption.
- When viewing how and to what extent basic consumption is substituted when selective consumption increases, it is apparent that substitution does not occur in the short term, nor is it complete in the long term.
- This leads to the conclusion that overall consumption will increase as selective consumption increases.
- The availability of innovative goods and services that meet consumer needs and desires will not only increase the demand for these particular goods and services, but will also raise aggregate demand on a macroeconomic scale.
When a certain company offers revolutionary goods or services that meet consumer demands, it therefore follows that these products not only benefit the specific company, but also have the potential to provide a positive impact on a macroeconomic level. Furthermore, providing goods and services that combine consumer needs with proper timing is important both at the individual business level and at the macroeconomic level. To this end, it is necessary to avoid the loss of sales opportunities by anticipating potential consumer needs, and by preventing shortages through ensuring that sites of direct consumer interaction are fully stocked.
CONTENTS
Introduction
- Basic Idea and Concept
- Observation (Selective consumption and basic consumption)
- Analysis
- Examples
- Conclusion
Appendix
More Informations
- Japanese
- Full text is not available in English for this report.
The original Japanese full text is PDF here [407 KB].
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