1. Theme 3: Consumption and Consumerism (+ Supply and Demand)

2. Supply and Demand
In capitalism, what are the factors (forces) that help shape what is produced and consumed?
Supply and Demand determines trade:
Buyers purchase goods and services with money
Sellers get money for selling goods and services
The price is relative to the amount buyers are willing to trade and the amount sellers are willing to trade for both groups to be happy.
Price is determined between an equilibrium between those that demand and those that sell.
What is demand?
A Ferrari (a very nice car)? A trip around the world? A Big Beautiful House? Do you demand these?

3. Demand
Demand: desire, willingness, and ability to buy a good or service at various prices.
Three variables required for demand to exist:
Consumer must want to buy a product
Be willing to buy the product
Have the resources available to purchase the product

4. Demand schedule
Table that lists the various prices and quantities of a product or service that someone is willing to buy over a range of possible prices. (Could/should follow a logical progression)
Price (per bushel)
Quantity Demanded for Wheat (bushels per month) 90 45 85 65 80 75
105 70
125

5. Demand Curve

6. Demand curve
Graph that shows the amount of a product that would be bought at all possible prices in the market.
Price (vertical) and Quantity (Horizontal)
Law of demand: quantity demanded and price move in opposite directions (people will buy less the more an item costs and vice versa).
Market demand:
the total demand of all consumers within a specific market (Are you in the market for a car? Metro cookies?).
aggregate of all consumers who have demand for a specific product

7. Supply
Supply: refers to the maximum quantities of a good or service producers are willing to sell at all possible market prices.
Supply Schedule: Table that lists the various prices and quantities of a product or service that someone is willing to produce over a range of possible prices.
What will motivate a producer to make/sell more?

8. Supply Schedule Price (per bushel) Quantity supplied (bushels/month)90
115 85
100 80 75 70 55
What is the Law of Supply?

9. Law of Supply
Law of Supply: As prices for a good increase, so will the quantity the producers are willing to supply. If prices fall, the quantity producers are willing to supply will decrease.

10. Supply Curve

11. Finding the Equilibrium Price
Quantity Demanded
Quantity Supplied
State of the Market
Change in Price 90 45
115
Surplus=70 units
Decrease Price 85 65
100
Surplus=35 units 80 EP
Stay 75
105
Shortage=35 units
Increase Price 70
125 55
Shortage=70 units
Surplus: the quantity supplied is greater than the quantity demanded (price is too high).
Shortage: the amount demanded is greater than the quantity is supplied (price is too low).
Equilibrium Price: the price when there is neither a surplus nor a shortage.

12. Supply and demand

13. Shifts in demand
NOT DETERMINED BY A CHANGE IN PRICE!!! The price remains the same, but quantity would change.
More demand => shifts to the right
Less demand => shifts to the left
Change in Population (number of consumers): population increase/decrease
Change in Consumer income
Normal good: I increase-D increase and I decrease- D decrease
Inferior good: I increase- D decrease and I decrease- D increase
Change in consumer’s taste: what is hot (tickle me elmo, zhu-zhu pets)
Change in consumer’s expectations: tech innovation
Change in substitutes (a good or service which can be used in place of another good or service): Coca-Cola and Pepsi and RC cola
Change in complements (an item used with another good): if price of hot dogs increases too much than demand for hot dog buns decreases)

14. Shifts in Demand

15. Elasticity
When you change the price (increase), what percentage does demand change (decrease).
The extent to which a change in price causes a change in the quantity demanded.
When there are many substitutes, products are usually more elastic.
Products with less substitutes are inelastic (price change has little effect on demand).

16. Changes in supply (shifts)
Created by a non-price determinant!
Change in the cost of resources- P (decreases), suppliers can supply more at the same price.
Change in productivity- More efficient, suppliers can supply more at the same price.
Change in technology- changes efficiency
Government regulations- increase regulations, suppliers will supply less at the same price.
Taxes and subsidies- S increase, Q increase; T increase, Q decrease.

17. Shifts in supply

18. Is Consumerism bad?
When you hear the word “consumption” or “consumerism”, do you believe that it takes on a negative connotation? Why or why not?
Minute: 6:40
Book Review:

19. Consumption Factors
Four factors which influence us to make a purchase:
Economic Factors (Type of economic system, Supply and Demand, Competition)
Political Factors (Regulation of products, tax credits)
Social Factors (Praise and ridicule; how you will be judged)
Personal Factors (Netflix Documentary: Sneakerheadz)

20. Personal Factors Personal income Needs Wants Morality and Ethics
Avoid living outside of your income for MOST reasons
Needs
How does your consumption affect your health?
Wants
Weigh your trade-offs and consider the opportunity costs
Set your short-term to long-term goals
Consider how much stress income creates for you before you spend
Morality and Ethics
Is there a moral weight to a purchase?
Consider the types of products and company traits you want to promote
Consider the type of economy you want to promote (shared economy, non-profit v. for-profit, national v. international companies)

21. Consumer Sovereignty
Consumer Sovereignty: the assertion that consumer preference determine the production of goods and services.
Collectively, consumer buying decisions direct the production of goods and services.
When consumers purchase, they are casting dollar “votes” for its continued consumption.
Important to remember the power of consumer advocacy (actions taken by individuals or groups to protect to promote and protect the interest of the buying public)
It is also important to remember that there are often less incentives for consumer advocacy in comparison to the lobbying power of the manufacturer.

22. One Week of Consumption Tracker
Assignment
One Week of Consumption Tracker

23. How to research products?
Phase 1: Before you shop
Identify needs, gather information (how?), be aware of the marketplace (brands, average prices)
Phase 2: Weighing alternatives
Comparison shopping
Phase 3: Making a purchase
Negotiate a price (car), decide how to pay (credit, cash, law-away, pay-pal)
Know the real price (taxes, fees)
Phase 4: After the purchase
Know your rights
Return policies

24. Consumer Responsibilities: Fraud and Deception
Bait and Switch: sales technique in which a seller advertisers a product with the intention of persuading consumers to buy a more expensive product (illegal).
Fake sale: advertised sale, but keeps items at regular price.
Low balling: a technique whereby a company advertises a product or service at a low price to lure in customers and then increase the price as the sale continues once they are sold (surcharges).

25. Continued
Pyramid scheme: multilevel marketing plan that promises members commissions from their own sales and those of other members they recruit.
Usually a cash investment is required by the newest members.
Ponzi scheme: a fraudulent investment operation in which money collected from new investors is used to pay off earlier investors.
Seems to pay off early by paying some dividends to early investors (from new investors) which brings in more investors.
“Bernie” Madoff- ripped off customers between $18 and $65 billion, and was sentenced to 150 years in prison.

27. Shop Smart Comparison Shopping Know prices
Compare unit prices (how many ounces or serving size)
Read Contracts
Keep warranties/receipts
Be loyal (give and ask advice to find the best)
Wait a day for most major purchases
You can’t just trust reviews online:
Time purchases (seasonal, time of day, clearances)
Avoid impulse buying