Chapter One: 1.1 Background of Study
Chapter One: 1.1 Background of Study
Chapter One: 1.1 Background of Study
INTRODUCTION
According to Henry, 2005 Americans spend more than 95% of their after -tax income
on consumer goods and services. About 2/3 of all the goods and services that
produced in USA in each year are used by consumers. The remaining1/3 is used by
the government or invested in buildings, manufacturing machinery, other forms of
capital in America, or other countries of world. (Henry, 2005)
According to the idea of Manikew, 2000 Consumption consists of the goods and
services are bought by household in different product categories. It makes up 2/3 of
GDP. (Manikew, 2000)
About 85% of total population of Ethiopia lives in rural area and practicing in
agriculture sector with subsistence farming system. Compared to thus production
systems with its population growth rate, it is difficult for each household head to feed
his or her family. In Ethiopia the household consumption behavior is in the lowest
level. This is because, since most people in Ethiopia produced agricultural products
and these products are both price and income inelastic the return from such types of
production is very low. (Soni, 2007)
According to Sitotaw and Negus, 2005, the household consumption behaviors in the
world and country even at regional level are different, due to the variation of income
and other variables among nations and people in the world. In Amhara region
households faces problems in all aspects to satisfy their needs. Because individuals
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cannot give value for work this leads to he/she have not enough income to maximize
his/her living standard. When individual households` income increase, consumption
and saving also increase and vice versa. (Sitotaw and Negus, 2005)
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In general most researchers such as (Zelalem, 2005; Dawit, 2016), conducted with
related to this topic, but they cannot incorporate the variable expectations of
households in their studies. There for the study attempt to full fill this study gap, by
adding this variable. On the other hand some of the studies have done using
descriptive analysis. But this study will be accomplished by using econometrics
model especially ordinary least square (OLS) estimation methods.
Bichena is one of the town in eastern gojjam administrative zone, the household
consumption in most part of Keble’s in this town is at low level, due to different
factors like education level, family size, administration problem, socio-economic
problem, income constraint, market problem etc. (BFEDO,2011). However, there is
no research have been done in identifying the major responsible factors that is
responsible for household consumption behavior in study area. Therefore, this study
will be believed to fill the gap by assessing the main factors of household
consumption behavior in the study area.
The main objective of the study will be identifying the determinants of household
consumption in Bichena town.
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1.4.2 Specific objective
In line with this, for reasons associated with time and resource, the scope of the study
is limit on three selected kebeles in Bichena town such as 01, 02 and 03 kebeles.
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This study will be faced the following limitations with related to time and cost,
another limitation of the study will be concerned with data collection and reference
materials. Having thus problems the study will aim to resist these problems and do the
study effectively.
CHAPTER TWO
LITERATURE REVIEW
2.1 Review of Theoretical Literature
Consumer behavior means how consumers decide on the basket of goods and services
they consume. It is essentially decision making behavior. In most cases, behavior of
consumer measured by its utility.
Utility refers to the numerical score responding the satisfaction that a consumer gets
from a market basket. In other words, utility is device used to simplify the ranking of
market basket. Alternatively, utility of a commodity is the basis of demand for it.
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2.1.3 Approaches to the Analysis of Consumer Behaviour
In the study there are four main approaches to the analysis of consumer behavior.
Assumptions
K Given the utility function above, the total utility obtained from (n) items maybe
expressed as:-
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UN = U1(X1) + U2(X2) + U3 (X3) + ………………………UN (XN)
Assumption
Consistency choice means that, if they prefer X to Y in one period, they will not
prefer Y to X in another period or treat them as equal, everything remaining the same.
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permanent income in any one year is in no sense indicated by its current income to be
received over a long period of time, stretching out over a number of future years.
Friedman puts this permanent income is to be interpreted as the mean income regard
as permanent by the consumer unit in question which in turn depends on its horizon
(Dorn bush, 1975)
The life cycle hypothesis is based on the argument that the rate of consumption in any
given period is a facet of plan, which extends, over his life cycle, although his income
displays a quit different pattern over the same year.
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One important reason that income varies over a person life is retirement. Host people
plan to stop working at about age 65 and expect their income to fall when they retire.
Yet they do not want large drop in their standard of living, as measured by their
consumption. To maintain consumption after retirement, people must save during
their working years (Mankiew, 2000).
The demand for high value food items (example: meat, milk vegetables and fruits)
increase with higher income. They are also expensive source of energy. This implies
that poor households are unlike to access them. This is largely because poor
households prioritize to fulfill their basic energy requirement to avoid hunger. This is
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mainly because high value food to be expensive source of energy for them.
Households with income near to subsistence level, consume large quantities of grains
and starchy staples and few fruits, vegetable, meat, milk, and milk products.
Consumer preferences on the other hand, shape the decision of consumer what to do
consume or not. Poor households, until they meet physiological need to satisfy
hunger, they have little choice but to focus on cheap sources of energy as grains and
starchy staples. Once they satisfied their basic energy needs, households start to
diversify their diets by including animals’ food sources, dairy products and fruits and
vegetable (Ruel et al, (2005) cited in Tadess kuma, (2010).
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CHAPTER THREE
METHODOLOGY OF STUDY
3.1 Description of study area
Bichena is a town in west central Ethiopia, located in the east gojjam zone of amhara
region. It is located at 169km to north of the city of Addis Ababa and 155km to south
east of Bahir Dar city. Astronomically, it is located 10.24⁰N-10.34⁰N latitude and
38.9⁰E-38.4⁰E longitude. Attitudinally, it is more of woina Dega being located
between 1480m-2400m above sea level. The topography of the town is gentile slope.
Currently Bichena town has 8 kebeles. It is the administrative canter of Enemay
woreda. It has a total land mass of 6945 hectares. The town has been experiencing
rapid urbanization and population increase. For instance, the 1984 and 1994
population censes put the population size of the town at 12570 and 16340,
respectively-an increase of 30% of the population in just 10 years. According to the
population and housing census of 2007, the population of the town reached about
27966, the population in 2007 increased by71.2% from its level in 1990s showing
also the very rapid rate of urbanization taking place in the town (BFEDO, 2011).
The climatic condition of the town is such that the mean annual maximum and
minimum temperature is 20.7°c and 7.5°c, respectively. The mean annual maximum
and the mean minimum rainfall of the town are recorded to be about 1200 mm and
2200 mm in the order of mention. The highest rainfall concentration occurs from the
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middle of May to the end of September showing that the duration is short but the
intensity is relatively high in the town. (BFEDO, 2011)
Cross sectional data will be used. Cross sectional data or cross section of a study
population in statistics and econometrics is a type of data collected by observing
many subjects (such as individuals) at the same point of time or without regard to
difference in time, analysis of cross sectional data usually consists of comparing the
differences among the subjects. Cross sectional data can be used in cross sectional
regression, which is regression analysis of cross sectional data (Brady et al, 2008).
since it is important for the values one or more than one variable are collected for
several sample unites at the same points in time, the researcher collect the data from
the respondents directly in a particular time.
As both primary and secondary data will be used, the appropriate method of data
collection for primary data will be questionnaires for sample households, interview
with town administrative and other response bodies. Likewise the secondary data’s
will be collected from books, journal reports and other related documents.
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3.5 Sample and sampling technique
There are two main sampling techniques in modern research study. These are
probability sampling and non- probability sampling. The study used simple random
sampling techniques i.e. purposive with homogenous population in various aspects,
like, culture, living standard etc. it is the simplest and easiest method of probability
sampling. It`s sampling procedure in which each element of the household has an
equal time chance of being selected in to sample. From the entire 8 kebeles of
Bichena town the researcher will be select three kebele such as, (01 kebele, 02 kebele
and 03 kebele), because, all kebele in this town have homogeneous character in
culturally and socially of households. So, the study allocate the sample size via simple
random sampling in each element of household has equal chance being selected in to
the sample.
Based on the data obtained from (BFEDO, 2011) the total number of household in
bichena town is 1900.
To determine the sample size the researcher might consider factors like cost, time etc.
so total size of 95 respondents are selected randomly by using Yamane sample size
formula in.
The number of household is equal to 1900 (610, from 01 kebele, 623, from 02 kebele,
and 667, from 03 Keble) and take 10% error term.
n =1900/1+1900 (0.12)
=1900/1+1900 (0.01)
=1900/1+19
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=1900/20
=95
Among this, from 01 Keble (610*95/1900) =31, from 02 Keble (623 *95/1900) =31,
and 03 Keble (667*95/1900) =33 respondents will select randomly. The technique
will apply as gives equal chance to all household that will be selected as a sample and
they represents the entry of household in all Keble’s due to homogeneity of Keble’s.
01 610 31
02 623 31
03 667 33
Total 1900 95
As mention earlier the study will be apply econometrics tools in order to analysis in
the determinants of household consumption behavior ordinary least square(OLS)
method will be employ with dependent variable. OLS is particularly powerful as it
relatively easy to also check the model assumption such as linearity, constant variance
and the effects of outliers using simple graphical methods (Hutcheson and Sofroniou,
1999). In this study the dependent and independent variables have linear relationship.
Therefor OLS method is appropriate to show the linear relationship between the two
variables.
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+β6Expc+β7Invst+β8Odf+ Ui
Ui =error term
The variables which are incorporated in the model with expected signs are given
by the following tables
member
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4 Education level Educ Educational level +
household head
household head
households
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3.7.1.2 Independent variable
Household disposable income (yd.):- It is the income after tax (net income of
Family size (Ni):- It is the total numbers of household members. This variable is
Age of household head (Age):- It`s one of the determinant of household consumption.
It measure the age of the household head in year. This variable is continuous and the
expected sign will be negative.
attained by the simple household head up time of the survey. This variable is
continuous and the expected sign will be positive.
consumption, it is a belief about what might happen in the future This variable is dummy
(1= certain and 0= uncertain) and the expected sign will be positive.
Investment of household (Invest):- it is the purchase of goods that are not consumed today but
are used in the future to create wealth for households and its expected sign will be
negative.
Other dependent family household (Odf):- It is a continuous variable and represent the
other household depend on the household and expected sign of this variable will be
positive.
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using both descriptive and econometric analysis. In the descriptive analysis different
table, pie chart and percentage are used to describe the information clearly. For
econometrical analysis, the study will be concentrated on the variables, such as,
household disposable income (yd.), household family size (Ni), age of household head
(Age), household head education level (Educ), total household saving status (Si),
expectation of household (Expec), investment of household (Invest) and other
dependent family household (Odf) as explanatory variable and total household
consumption (CT) as dependent variable using ordinary least square (OLS) estimation
method. Additionally, t-test (variable significant), prob>F, Multicollinearity and
Hetrosecedasticity problems will be tested. This estimation technique is working out
with the help of STATA software application program method. The study uses
ordinary least square estimation method (OLS) the reason is that OLS is the most
frequently used estimator due to the fact that, it has some optional properties; best,
linear and unbiased estimation(BLUE) than any other estimators(Gujirat, 2004).
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Time plan or time budget is a time table explaining how the researcher expected to
carry out his project. It is a plan in terms of months and expected completion.
2019/2020
1 Problem X
identificatio
2 Topic X
selection
3 Literature X
review
4 Proposal X
writing
5 Proposal X
submission
6 Proposal X
paper
defence.
7 Data X
collection
and process
8 Data X
analysis and
interpretatio
9 First draft X
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report
writing
10 Final report X
writing
11 Paper X
presentation
Cost budget refer to budget required to conduct the study which comprise the
materials and resource required.
4 Paper 0.50 30 15
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5 Telephone expense 25 4 100
6 Binding 15 1 15
9 Miscellanies 100
Total 1504
REFERENCE
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Henery J. Aaron. (2001) world book, vol.4USA, Chicago
Modigliani F. (1985) the life cycle hypothesis of saving, the demand for
wealth and the supply of capital, social research, Issue 33, pp.106-217.
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