How we make Spending Decisions

Diminishing Marginal Utility Each additional unit of a product one buys is less useful than the one purchased before it

Diminishing Marginal Utility Each additional unit of a product one buys is less useful than the one purchased before it Ex. If you had no shoes, and you finally purchase a pair, they are very valuable to you, but if you buy a 2 nd and 3 rd pair, each pair becomes less important

Diminishing Marginal Utility The demand curve for this would show that with each additional purchase, the consumers’ demand for shoes decreases

Diminishing Marginal Utility The demand curve for this would show that with each additional purchase, the consumers’ demand for shoes decreases Which means, you are willing to pay less and less for a product the more you have of it

Consumer Sovereignty From our studies in econ so far, who do you think is in control of the economic market?

Consumer Sovereignty From our studies in econ so far, who do you think is in control of the economic market? The idea that the consumer is in charge of the market price of a good is known as consumer sovereignty

Consumer Sovereignty From our studies in econ so far, who do you think is in control of the economic market? The idea that the consumer is in charge of the market price of a good is known as consumer sovereignty Manufacturers must make what consumers want to buy

Consumer Sovereignty From our studies in econ so far, who do you think is in control of the economic market? The idea that the consumer is in charge of the market price of a good is known as consumer sovereignty Manufacturers must make what consumers want to buy Manufacturers must set it at a price consumers are willing to spend

Consumer Sovereignty The idea that the consumer is in charge of the market price of a good is known as consumer sovereignty Manufacturers must make what consumers want to buy Manufacturers must set it at a price consumers are willing to spend The quality must be satisfactory

Consumer Sovereignty The idea that the consumer is in charge of the market price of a good is known as consumer sovereignty Manufacturers must make what consumers want to buy Manufacturers must set it at a price consumers are willing to spend The quality must be satisfactory Prices must be competitive to existing products

Invisible Hand Theory Economic Theorist Adam Smith believed that the market adjusts itself “Laissez Faire”

Invisible Hand Theory Economic Theorist Adam Smith believed that the market adjusts itself “Laissez Faire” Prices, consumption, and the manufacturing process do not need an outside hand to guide them

Invisible Hand Theory Economic Theorist Adam Smith believed that the market adjusts itself “Laissez Faire” Prices, consumption, and the manufacturing process do not need an outside hand to guide them Hence, his “invisible hand” theory that the market is self-regulating

Invisible Hand Theory Profit and Prices will allow:

Invisible Hand Theory Profit and Prices will allow: For the production of necessary materials

Invisible Hand Theory Profit and Prices will allow: For the production of necessary materials For the businesses to make a profit

Invisible Hand Theory Profit and Prices will allow: For the production of necessary materials For the businesses to make a profit For goods that are not a necessity to flourish