Consumers – The Engine That Runs the Economy Personal Finance Chapter 1

Section 1.1 “Decisions, Decisions” If businesses want to profit, they have to give customers what they want If businesses want to profit, they have to give customers what they want You have the power to choose what you buy and where you buy it! You have the power to choose what you buy and where you buy it! Local, state, national, international Local, state, national, international The decisions you make affect businesses in the US and around the world The decisions you make affect businesses in the US and around the world

Section 1.1 “Decisions, Decisions” Values – the principles and standards by which you live Values – the principles and standards by which you live Life Values – principles most important in your life Life Values – principles most important in your life Example: Who you spend time with and what you do in your free time Example: Who you spend time with and what you do in your free time Work Values – principles that are most important in your work life Work Values – principles that are most important in your work life Example: The kind of job you have – what you do for a living Example: The kind of job you have – what you do for a living Social Values – principles held by a great number of people in society Social Values – principles held by a great number of people in society What is the “norm?” What is the “norm?”

Section 1.1 “Decisions, Decisions” Goals – things you want to accomplish in life Goals – things you want to accomplish in life They come from your values, needs, hopes, wants and dreams. They come from your values, needs, hopes, wants and dreams. Goals can be influenced by things you see, read, and experiences you have Goals can be influenced by things you see, read, and experiences you have Needs – things you can’t live without Needs – things you can’t live without Wants – things you would like to have but can live without Wants – things you would like to have but can live without

Section 1.1 “Decisions, Decisions” Know your goals – plan your goals! Know your goals – plan your goals! A budget is a big part of planning your goals A budget is a big part of planning your goals Make a budget and stick to it! Make a budget and stick to it! Planning will help you reach your goals! Planning will help you reach your goals! Opportunity Cost – the value of your next best alternative Opportunity Cost – the value of your next best alternative Different people value different things – your next best alternative might not be the same in different situations Different people value different things – your next best alternative might not be the same in different situations

Section 1.1 “Decisions, Decisions” Opportunity cost comes with things you have to give up! Opportunity cost comes with things you have to give up! Consider the things you have to give up Consider the things you have to give up Consider if the reward is worth the cost Consider if the reward is worth the cost Consider other options Consider other options Goals can change and values can change Goals can change and values can change Consider your values, needs, wants, hopes, dreams and opportunity costs before making decisions! Consider your values, needs, wants, hopes, dreams and opportunity costs before making decisions!

Section 1.2 “Make Decisions” Rational Buying Decision – a choice made in an organized logical manner Rational Buying Decision – a choice made in an organized logical manner Impulse Purchase – a purchase made on a whim, without using a decision making process. Impulse Purchase – a purchase made on a whim, without using a decision making process.

Section 1.2 “Make Decisions” Specify – Identify NEED or WANT Specify – Identify NEED or WANT Search – Gather information! Search – Gather information! Sift – Look at your options and opportunity costs Sift – Look at your options and opportunity costs Select – Make a choice and act on it! Select – Make a choice and act on it! Study – Use the product and evaluate your purchase Study – Use the product and evaluate your purchase

Section 1.3 “Understand Economic Systems” Economic System – the way a nation uses resources to produce goods and services. Economic System – the way a nation uses resources to produce goods and services. Every nation has it’s own economic system. Every nation has it’s own economic system. Production – creation of goods and services. Production – creation of goods and services. Resources – raw materials, labor, knowledge Resources – raw materials, labor, knowledge Producing goods and services requires resources. Producing goods and services requires resources.

Section 1.3 “Understand Economic Systems” Economics – the study of how economic systems work. Economics – the study of how economic systems work. Traditional Economy – production methods passed from one generation to the next. Traditional Economy – production methods passed from one generation to the next. Some tribes in remote areas still operate in traditional economy. Some tribes in remote areas still operate in traditional economy. Command Economy – the government owns most resources and makes most economic decisions. Command Economy – the government owns most resources and makes most economic decisions.

Section 1.3 “Understand Economic Systems” Capitalist or Market Economy – people, rather than the government, own the resources and run the businesses. Capitalist or Market Economy – people, rather than the government, own the resources and run the businesses. Goal of businesses = make a profit! Goal of businesses = make a profit! Profit – the difference between the cost required to create the product and the money received from selling it Profit – the difference between the cost required to create the product and the money received from selling it Profit = Price - Cost Profit = Price - Cost Mixed Economy – mixture of a market and command economy. Mixed Economy – mixture of a market and command economy.

Section 1.3 “Understand Economic Systems” Supply and Demand Supply and Demand Demand – the quantity of goods or services that consumers are willing and able to buy at various prices during a given time period. Demand – the quantity of goods or services that consumers are willing and able to buy at various prices during a given time period. Law of Demand – consumers will demand more of a product at a lower price than a higher price. Law of Demand – consumers will demand more of a product at a lower price than a higher price.

Section 1.3 “Understand Economic Systems” Supply – the quantity of product that producers are willing and able to make available for sale over a given period of time. Supply – the quantity of product that producers are willing and able to make available for sale over a given period of time. Law of Supply – producers are willing to offer more of a product for sale at a higher price than a lower price. Law of Supply – producers are willing to offer more of a product for sale at a higher price than a lower price. Producers (companies ) have to look at DEMAND when deciding how much product to SUPPLY! Producers (companies ) have to look at DEMAND when deciding how much product to SUPPLY!

Section 1.4 “Consumer’s Role in the Economy” In a market economy, consumers are free to buy and producers are free to sell! In a market economy, consumers are free to buy and producers are free to sell! BOTH BUYERS AND SELLERS BENEFIT! BOTH BUYERS AND SELLERS BENEFIT! Buyers – get the good or service they want Buyers – get the good or service they want Sellers – make a profit Sellers – make a profit

Section 1.4 “Consumer’s Role in the Economy” Consumer decisions affect supply and demand. BOTH influence consumer decisions! Consumer decisions affect supply and demand. BOTH influence consumer decisions! Stores must respond to demand: Stores must respond to demand: Lower their prices Lower their prices Convince the consumer to pay the higher prices Convince the consumer to pay the higher prices Stop offering the product Stop offering the product

Section 1.4 “Consumer’s Role in the Economy” Consumers are people who buy or use a product. Consumers are people who buy or use a product. Consumers ALWAYS determine what goods and services are produced. Consumers ALWAYS determine what goods and services are produced. Consumer sovereignty – “The consumer is always right!” Consumer sovereignty – “The consumer is always right!” As consumers buy goods and services, we create sales that provides businesses with a profit! As consumers buy goods and services, we create sales that provides businesses with a profit! To carry out our role in the economy, we need to make good decisions.

Section 1.5 “Advertising and Consumer Decisions” Competition – the contest among sellers to win consumers! Competition – the contest among sellers to win consumers! Competition forces businesses to serve customers Competition forces businesses to serve customers Businesses advertise to influence consumers to buy their products! Businesses advertise to influence consumers to buy their products! Goal = PROFIT! Goal = PROFIT! Different types of ads influence in different ways Different types of ads influence in different ways

Section 1.5 “Advertising and Consumer Decisions” Brand Advertising Brand Advertising Purpose is to remember BRAND NAME – make you brand loyal Purpose is to remember BRAND NAME – make you brand loyal Jingles – Catchy tunes Jingles – Catchy tunes Catchy slogans, phrases, “mascots” Catchy slogans, phrases, “mascots” May have to increase prices to pay for advertising May have to increase prices to pay for advertising

Section 1.5 “Advertising and Consumer Decisions” Informative Advertising Informative Advertising Educates you about the product’s benefits – products most would not understand! Educates you about the product’s benefits – products most would not understand! Provide information to help you make a buying decision Provide information to help you make a buying decision Be aware – no ad will tell you about the downside of the product! Be aware – no ad will tell you about the downside of the product!

Section 1.5 “Advertising and Consumer Decisions” Comparative Advertising Comparative Advertising Comparing to competition – convince you to buy theirs! Comparing to competition – convince you to buy theirs! Will ALWAYS be slanted in favor or advertised product! Will ALWAYS be slanted in favor or advertised product! Will highlight best qualities of a product Will highlight best qualities of a product Will tell you competitor’s weaknesses (may be exaggerated!) Will tell you competitor’s weaknesses (may be exaggerated!)

Section 1.5 “Advertising and Consumer Decisions” Defensive Advertising Defensive Advertising Respond to comparative ads from other companies Respond to comparative ads from other companies Does not give you a complete picture of the product Does not give you a complete picture of the product

Section 1.5 “Advertising and Consumer Decisions” Persuasive Advertising Persuasive Advertising Designed to appeal to your emotions Designed to appeal to your emotions Doesn’t provide much useful information Doesn’t provide much useful information Buying it will make you happier, more successful or more satisfied! Buying it will make you happier, more successful or more satisfied! MISLEADING! MISLEADING!