Truth about Consumption Real Income Effect- People cannot keep buy the same quantity of a good if the price rises while their income stays the same. Substitution Effect- If the price of one good rises in relation to another, people will begin buying the lower priced good.

Truth about Consumption Utility- The power a good or service has to satisfy a want or a need. Marginal Utility- When purchasing additional identical goods. The level of satisfaction that results in the purchase of each additional good. Law of Diminishing Returns- The marginal utility of each additional good purchased will slightly diminish with the purchase of each additional good.

Consumer Living Consumer- is anyone who purchases goods or services to satisfy their wants or needs. Your ability to consume in turn depends on your available income and how much of it you choose to spend now or save.

Income Your income can be broken down into 2 categories and is usually spent in the following progression. 1. Disposable Income- is the money, a person has after taxes. Necessities Food Clothing housing 2. Discretionary Income- Leftover income that can be saved or spent on luxury items or entertainment.

How Education Affects Income Level of Education Median Income M F Non high school graduate $19,802 $10,613 High school graduate $27,526 $15,972 Some college $35,023 $20,602 Bachelor’s degree $55,188 $34,292 Dr/ PHD $88,216 $44,748

Quiz for Free?? What’s the difference between Marginal Utility and the Law of Diminishing Returns ? What’s the difference between disposable income and discretionary Income? What’s the difference between Real Income Effect and the Substitution Effect?

Consumer Decisions Involve 3 Main Considerations Scarce Resources- income and time -The time you spend deciding on what to purchase cannot be repaid, neither can the income you have spent. 2. Opportunity Cost- the fusion of should you buy an item along with the quality of the item you are purchasing.

U.S. Avg Consumer Expenditures

So obtain as much information as Product Information How much time should you spend researching a good or service? So obtain as much information as YOU deem WORTHWHILE. This information can be obtained by Friends Family Sales clerks Magazines Internet

Advertising Classified in 1 of 2 categories 1. Competitive Advertising- used to take customers away from other brands or keep them loyal to their brand. http://www.youtube.com/watch?v=reLdB-3abHU 2. Informative Advertising- Used to provide useful information about a product http://www.youtube.com/watch?v=stW_8O8GTyE&feature=related

Advertising Bait and Switch- An advertised item at an unbelievably low price. When the consumer arrives the sales person points out all the bad features of the product only to promote a more expensive model or brand. http://www.youtube.com/watch?v=YvgM2Dq3YfM *Deceptive & Illegal… but it happens

Comparison shopping Getting information about various goods and their prices before purchasing. Buying incentives- Warrantee Brand names Generic brands

Consumerism 1962- JFK outlined a list of consumer rights Began in the 1960’s to inform consumers about purchases they make and demand better, safer products from their manufactures. 1962- JFK outlined a list of consumer rights 1. Right to safety 2. Right to be informed (fighting fraud) 3. Right to choose (to maintain competitive markets fight monopolies ex power companies) 4. Right to be heard (a guarantee that consumers will be listened to when laws are being written) Nixon added 5. Right to redress (right to repayment for damaged goods)

Consumer Responsibilities Read the box at the bottom of page 78 Exhibit ethical behavior- Ex. not to return used items because they are advertised elsewhere at a lower price. Rather research prices before you buy.

Quiz for Free?? On average how much will your income increase for each level of education you achieve? Which U.S. President is known for establishing consumer rights? Define Competitive Advertising Informative Advertising Bait and Switch tactics