Theme 2: Consumption and Consumerism (Economic Systems + Supply and Demand)

Economic Systems Capitalism v. Communism Capitalism: an economic system in which the citizenry is free to choose how to best utilize (produce, distribute and consume) their resources. “Laissez Faire”: hands free of the government Limited government regulation or control of production and consumption. Pure Capitalism: NO government interference Give examples of capitalist behavior. Give examples of government regulation or control of the markets Has a largescale “pure” capitalist system ever existed?

Economic Systems Continued…Communism Communism: a social and economic system by which the citizenry is structured in a classless society through which “common ownership” of all property and choices determines the best means to utilize (produce, manufacture, and distribute) all resources. Purest form of a “Command Economy Has a pure Communist system ever existed on a large scale? Socialism: characterized by a large degree of government control of how to best utilize (manufacture, produce, and distribute) resources. Often characterized by high taxes with universal access to specific public services to boot. Historically, has often lent itself to authoritarian forms of government.

Wait a second…thats…that’s Arizona

Mixed Economy Mixed economy: an economy which contains elements of more than one type of economic system. Americans utilize both socialist and capitalist principles in our economic approach. What question does that create if we have a mixed economy? What are the strengths of capitalism and socialism? Weaknesses?

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 trip around the world? Do you demand these?

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

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

Demand Curve

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. aggregate of all consumers who have demand for a specific product

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.

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

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.

Supply Curve

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.

Supply and demand

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? http://www.economist.com/news/international/21698051-frank-trentmann-discusses-his-history-consumerism-empire-things-and-reveals-guilty Minute: 6:40

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

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)

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.

One Week of Consumption Tracker Assignment One Week of Consumption Tracker

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

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).

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.

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: http://www.forbes.com/sites/suwcharmananderson/2012/08/28/fake-reviews-amazons-rotten-core/#2cd9c6a366d6 Time purchases (seasonal, time of day, clearances) Avoid impulse buying