© Thomson/South-Western ECONOMIC EDUCATION FOR CONSUMERS Slide 1 Consumer’s Role in the Economy Objectives: By the end of class, students will be able to:  Define the profit motive  Explain the role of consumers in a market economy  Describe how the Profit motive works  Explain how profits, losses, and resources are interrelated  Explain what goods will be produced and who decides what goods will be produced in a market economy

© Thomson/South-Western ECONOMIC EDUCATION FOR CONSUMERS Slide 2 Making Decisions in a Market Economy  Information for the economy  Prices  The profit motive  Consumer economics  Consumers in charge  Benefits of competition  Efficiency and profits

© Thomson/South-Western ECONOMIC EDUCATION FOR CONSUMERS Information for the Economy  Exchanges in a market economy do more than benefit buyers and sellers  They provide information that help the economic system work  When customers buy something in a store, the store gains information about consumers’ buying habits  Consumer decisions in stores also help to determine what manufacturers make.  The price of a good is also information.  Example: Store A sells a good for $ Store B sells the same good for $ Most consumers will purchase the good from Store B which will in turn force Store A to change if it wishes to remain in business. Slide 3

© Thomson/South-Western ECONOMIC EDUCATION FOR CONSUMERS Profits  Profit is what is left over after all expenses have been paid.  Profit is the difference between total income and total costs.  Total income-Total Costs= Profit  Profits are rewards for taking risks Slide 4 Chapter 1

© Thomson/South-Western ECONOMIC EDUCATION FOR CONSUMERS Profits continued  There are two basic kinds of profits:  Normal Profits  Excess Profits Normal Profits are the lowest profits that will keep a business going. If normal profits are not earned, the business cannot continue Excess Profits is the money earned over and above normal profits. Excess profits are not needed to keep a business going. Excess profits do not last very long due to competition Slide 5 Chapter 1

© Thomson/South-Western ECONOMIC EDUCATION FOR CONSUMERS The Profit Motive  The most important reason to run a business in a market economy is to earn a profit.  Companies that do not earn a profit will not last.  The Profit motive helps businesses decide how to use their resources  Companies can increase their profits in three ways  Reduce Costs  Change Price  Increase Quantity of Products Sold Slide 6

© Thomson/South-Western ECONOMIC EDUCATION FOR CONSUMERS Consumer Economics and Consumers in Charge  A consumer is anyone who buys or uses a good or service.  Consumers determine what products are made Slide 7

© Thomson/South-Western ECONOMIC EDUCATION FOR CONSUMERS Competition  Competition is the contest among sellers for the dollars of consumers  Competition exists when several companies offer similar products for sale  Competition forces businesses to serve consumers Slide 8

© Thomson/South-Western ECONOMIC EDUCATION FOR CONSUMERS Efficiency and Profits  As companies compete, they must find ways to use their resources efficiently.  In other words, they must produce products at low costs so they can sell the products at a price consumers are willing to pay and still make a profit.  Profitable companies have three things in common  Sell products consumers want to buy  Sell products at a price consumers are willing to pay  Take in more money from sales than the company spends to produce their products Slide 9

© Thomson/South-Western ECONOMIC EDUCATION FOR CONSUMERS C HECKPOINT 1.4  How do demand and supply act together in a market economy to set the equilibrium price for a product?

© Thomson/South-Western ECONOMIC EDUCATION FOR CONSUMERS C HECKPOINT 1.4 ANSWER  How do demand and supply act together in a market economy to set the equilibrium price for a product? Profits result from selling products for more than it costs to make them To earn a profit, businesses must produce products that consumers buy When consumers spend their money, they determine what products are produced At the equilibrium price, consumers are willing and able to buy the same amount of the product as producers are willing and able to supply Slide 11