In economics, a false economy or hallucinated economy is an action that does save money at the beginning but which, over a longer period of time, results in more money being spent or wasted than being saved. For example, it may be false economy if a city government decided to purchase the cheapest automobiles for use by city workers to save money; however, if cheap automobiles have a record of needing more frequent repairs, the additional repair costs would eradicate any initial savings.
Motivating factors on the part of the party engaging in a false economy may be linked to the long-term involvement of this party. For example, a real estate developer who builds a condominium may turn the finished structure over to the ensuing condominium corporation which is run by its members once the last unit is sold and the building has passed a final inspection. Longevity of the components of the structure beyond the final turnover of the facility may not be a major motivating factor for the developer, meaning that the result of the application of false economies may be more detrimental to the end user, as opposed to the developer.
Individuals may also practise false economy in their personal lives. A notable practitioner of false economy was King Frederick William I of Prussia, who was said by Thomas Macaulay to have saved five or six reichsthalers a year by feeding his family unwholesome cabbages even though the poor diet sickened his children and the resulting medical care cost him many times what he saved. [1]
Some examples of potential false economies include:
All these examples save the consumer some amount of money in the short-run, however could end up costing the consumer more further down the road.
The concept is related to planned obsolescence, whereby the lower initial cost of a product attracts buyers mostly on the basis of low cost, but who may later be at a disadvantage if the product becomes obsolete early.
Those in poverty often opt into false economies when they perceive that they can't afford the better long-term option in the short-term. [2] [3]
In economics, inflation is an increase in the money supply, causing the consumer price index (CPI) to increase. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduction in the purchasing power of money. The opposite of CPI inflation is deflation, a decrease in the general price level of goods and services. The common measure of inflation is the inflation rate, the annualized percentage change in a general price index. As prices faced by households do not all increase at the same rate, the consumer price index (CPI) is often used for this purpose. The employment cost index is also used for wages in the United States.
A variety of measures of national income and output are used in economics to estimate total economic activity in a country or region, including gross domestic product (GDP), gross national product (GNP), net national income (NNI), and adjusted national income. All are specially concerned with counting the total amount of goods and services produced within the economy and by various sectors. The boundary is usually defined by geography or citizenship, and it is also defined as the total income of the nation and also restrict the goods and services that are counted. For instance, some measures count only goods & services that are exchanged for money, excluding bartered goods, while other measures may attempt to include bartered goods by imputing monetary values to them.
Purchasing power parity (PPP) is a measure of the price of specific goods in different countries and is used to compare the absolute purchasing power of the countries' currencies. PPP is effectively the ratio of the price of a basket of goods at one location divided by the price of the basket of goods at a different location. The PPP inflation and exchange rate may differ from the market exchange rate because of tariffs, and other transaction costs.
Overconsumption describes a situation where a consumer overuses their available goods and services to where they can't, or don't want to, replenish or reuse them. In microeconomics, this may be described as the point where the marginal cost of a consumer is greater than their marginal utility. The term overconsumption is quite controversial in use and does not necessarily have a single unifying definition. When used to refer to natural resources to the point where the environment is negatively affected, is it synonymous with the term overexploitation. However, when used in the broader economic sense, overconsumption can refer to all types of goods and services, including manmade ones, e.g. "the overconsumption of alcohol can lead to alcohol poisoning". Overconsumption is driven by several factors of the current global economy, including forces like consumerism, planned obsolescence, economic materialism, and other unsustainable business models and can be contrasted with sustainable consumption.
Obsolescence is the process of becoming antiquated, out of date, old-fashioned, no longer in general use, or no longer useful, or the condition of being in such a state. When used in a biological sense, it means imperfect or rudimentary when compared with the corresponding part of other organisms. The international standard IEC 62402:2019 Obsolescence Management defines obsolescence as the "transition from available to unavailable from the manufacturer in accordance with the original specification".
Local purchasing is a preference to buy locally produced goods and services rather than those produced farther away. It is very often abbreviated as a positive goal, "buy local" or "buy locally', that parallels the phrase "think globally, act locally", common in green politics.
The design life of a component or product is the period of time during which the item is expected by its designers to work within its specified parameters; in other words, the life expectancy of the item. It is not always the actual length of time between placement into service of a single item and that item's onset of wearout.
In economics, market saturation is a situation in which a product has become diffused (distributed) within a market; the actual level of saturation can depend on consumer purchasing power; as well as competition, prices, and technology.
In economics and industrial design, planned obsolescence is a policy of planning or designing a product with an artificially limited useful life or a purposely frail design, so that it becomes obsolete after a certain pre-determined period of time upon which it decrementally functions or suddenly ceases to function, or might be perceived as unfashionable. The rationale behind this strategy is to generate long-term sales volume by reducing the time between repeat purchases. It is the deliberate shortening of a lifespan of a product to force people to purchase functional replacements.
Total cost of ownership (TCO) is a financial estimate intended to help buyers and owners determine the direct and indirect costs of a product or service. It is a management accounting concept that can be used in full cost accounting or even ecological economics where it includes social costs.
An economic system, or economic order, is a system of production, resource allocation and distribution of goods and services within a society. It includes the combination of the various institutions, agencies, entities, decision-making processes, and patterns of consumption that comprise the economic structure of a given community.
Artificial scarcity is scarcity of items despite the technology for production or the sufficient capacity for sharing. The most common causes are monopoly pricing structures, such as those enabled by laws that restrict competition or by high fixed costs in a particular marketplace. The inefficiency associated with artificial scarcity is formally known as a deadweight loss.
The throw-away society is a generalised description of human social concept strongly influenced by consumerism, whereby the society tends to use items once only, from disposable packaging, and consumer products are not designed for reuse or lifetime use. The term describes a critical view of overconsumption and excessive production of short-lived or disposable items over durable goods that can be repaired, but at its origins, it was viewed as a positive attribute.
A business can use a variety of pricing strategies when selling a product or service. To determine the most effective pricing strategy for a company, senior executives need to first identify the company's pricing position, pricing segment, pricing capability and their competitive pricing reaction strategy. Pricing strategies and tactics vary from company to company, and also differ across countries, cultures, industries and over time, with the maturing of industries and markets and changes in wider economic conditions.
In economics, economic value is a measure of the benefit provided by a good or service to an economic agent. It is generally measured through units of currency, and the interpretation is therefore "what is the maximum amount of money a person is willing and able to pay for a good or service?”
In economics, demand is the quantity of a good that consumers are willing and able to purchase at various prices during a given time. The relationship between price and quantity demand is also called the demand curve. Demand for a specific item is a function of an item's perceived necessity, price, perceived quality, convenience, available alternatives, purchasers' disposable income and tastes, and many other options.
A product line extension is the use of an established product brand name for a new item in the same product category.
Product lifetime or product lifespan is the time interval from when a product is sold to when it is discarded.
This glossary of economics is a list of definitions of terms and concepts used in economics, its sub-disciplines, and related fields.
The Sam Vimes "Boots" theory of socioeconomic unfairness, often called simply the boots theory, is an economic theory that people in poverty have to buy cheap and subpar products that need to be replaced repeatedly, proving more expensive in the long run than more expensive items. The term was popularized by English fantasy writer Sir Terry Pratchett in his 1993 Discworld novel Men at Arms. In the novel, Sam Vimes, the captain of the Ankh-Morpork City Watch, illustrates the concept with the example of boots.
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