Bell Work Write down what you think the attributes of a successful person are? © 2010 South-Western, Cengage Learning

Bell Work 2 Why is it important to know what your values are? Refer to the “CORE VALUES” handout given to you in the last class for a list of values. © 2010 South-Western, Cengage Learning

CHAPTER 1 CONSUMERS The Engine That Runs the Economy Economic Education for Consumers 2/19/2018 CHAPTER 1 CONSUMERS The Engine That Runs the Economy WHAT’S AHEAD 1.1 Decisions, Decisions 1.2 Make Decisions 1.3 Understand Economic Systems 1.4 Consumer’s Role in the Economy 1.5 Advertising and Consumer Decisions 1.6 Be a Responsible Consumer Chapter 1

LESSON 1.1 Decisions, Decisions Objectives Identify several important values you hold. Explain how creating a life-span plan helps you make better decisions. Describe what an opportunity cost is. © 2010 South-Western, Cengage Learning

KEY TERMS values goals needs wants long-term goals life-span life span goals life-span plan short-term goals opportunity cost © 2010 South-Western, Cengage Learning

KEY TERMS values - your principles—the standards you live by goals - the things you want to accomplish in your life needs - the things you can’t live without wants - the things you would like to have but can live without opportunity cost - the value of your next best alternative whenever you make a choice © 2010 South-Western, Cengage Learning

Consumer Decisions You as the consumer have power over businesses. The customer has the power to decide what to buy and whom to buy it from. With the power to make so many different decisions that you may wonder…..where do I start? Knowing your VALUES is a good place to begin. © 2010 South-Western, Cengage Learning

Values Values - Principles and standards you live by Varies by person and can change over time Life Values – Things that are important to your life span (from birth till death) EX: Spending time with family and friends Life Cycle – is made up of important events in your life that takes place during your life span © 2010 South-Western, Cengage Learning

You’ve Got the Power Values change Different people, different values Life Values Work Values Cultural Values Social Values Demographic Values © 2010 South-Western, Cengage Learning

Classification of Values Work Values – Career/Job Working for business that respects its employees Cultural Values: Heritage Work in or create a business that promotes heritage Social Values Working to keep community clean Demographic Values Values will change at different stages in your life Living in city vs. suburbs © 2010 South-Western, Cengage Learning

Values Values Exercise Review the list of Core Values Rank the values listed in order of importance TO YOU Complete other exercises © 2010 South-Western, Cengage Learning

Needs vs Wants Needs – Things you cannot live without Everyone needs a minimum amount of food, water, clothing, and a place to live. Your needs may include having a way to get to school and a warm coat for winter Wants – Things you would like to have but can live without A want might be a new game system or a new team jacket Sometimes people confuse needs and wants. For instance, you may need new shirts for school but you don’t need the most expensive team shirts available iphone: need or want? McDonald’s: need or want? © 2010 South-Western, Cengage Learning

Goals Goals – Things you want to accomplish Work to reach your goals Short-term goals Long-term goals/Medium range goals A life-span plan - BHAG (Big Hairy Audacious Goals) Work to reach your goals © 2010 South-Western, Cengage Learning

Goals View Goal Setting Power Point lesson Complete Goal Setting exercise © 2010 South-Western, Cengage Learning

Opportunity Cost Opportunity cost and decisions The value of the next best alternative When making a decision, sometimes there are things you need to sacrifice and give up Example: You’ve earned $60 from a part time job and you want to buy a new video game but also want new shoes. You can only afford to buy one of the two items…. you must make a decision Consider other options Less expensive items More time to earn enough money for both © 2010 South-Western, Cengage Learning

Your Life Span © 2010 South-Western, Cengage Learning

Life Span Chart You are going to make a life span chart for your life. Include any milestone you can remember throughout your life as well as things you plan to do in the future. Sports played Traveling School milestones/ events Clubs/activities Future Plans: college, marriage, house, bucket list © 2010 South-Western, Cengage Learning

Checkpoint 1.1 What are the various ways values can be classified? How can creating a life-span plan help you make better decisions? What is opportunity cost? Give an example. © 2010 South-Western, Cengage Learning

Checkpoint 1.1 answers What are the various ways values can be classified? Values are the principles, or standards, by which you live. Life values Work values Cultural values Social values Demographic values © 2010 South-Western, Cengage Learning

Checkpoint 1.1 answers How can creating a life-span plan help you make better decisions? A life-span plan is a strategy you create to help you achieve your long-term goals. You can use this plan to help you make decisions and identify the actions to take as you work toward your goals. © 2010 South-Western, Cengage Learning

Checkpoint 1.1 answers What is opportunity cost? Give an example. Opportunity cost is the value of your next best alternative whenever you make a choice. Examples: go to college or get a job right now save for a new car or take a vacation go out for a nice dinner or do pizza and a movie tonight © 2010 South-Western, Cengage Learning

Bell Work Write down a list of products you have purchased recently Which ones were good decisions and which ones did you regret later? © 2010 South-Western, Cengage Learning

LESSON 1.2 Make Decisions Objective Describe each of the five steps in the decision making process. © 2010 South-Western, Cengage Learning

KEY TERM 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 Pack of gum, DVD, anything at the register in Wal-Mart or Target Ignores the normal decision process and increases the opportunity cost. © 2010 South-Western, Cengage Learning

Economic Triangle You can only pick 2 Q $ T Q - Quality T - Time $ Price © 2010 South-Western, Cengage Learning

Decision Making Process Specify – Identify needs and wants you are trying to fulfill. Search – Gather information about alternative choices (internet, sales persons, friends). Sift – Evaluate options. Consider opportunity cost. Select – Make a choice. Study – Evaluate result. © 2010 South-Western, Cengage Learning

Specify Values Goals Need or want? © 2010 South-Western, Cengage Learning

Search Plan your search Avoid impulse purchases Examples of impulse buys Candy Music ??? © 2010 South-Western, Cengage Learning

Sift Look at your options Look at your opportunity costs © 2010 South-Western, Cengage Learning

Select Compare the benefits and costs Decide © 2010 South-Western, Cengage Learning

Study You can learn important lessons from the results of your actions Would you do the same thing again? If so, why? If not, what would you do differently? © 2010 South-Western, Cengage Learning

Checkpoint 1.2 Describe each of the five steps in the decision making process. © 2010 South-Western, Cengage Learning

Checkpoint 1.2 answer Describe each of the five steps in the decision making process. Specify: Identify specific need or want; determine your goals Search: Gather information about your alternative choices Sift: Evaluate your options; consider your opportunity costs Select: Make a choice and act on it Study: Evaluate the results of your choice © 2010 South-Western, Cengage Learning

Bell Work Write down how you think companies come up with a price to charge for a product. What consideration do they have to make? © 2010 South-Western, Cengage Learning

Bell Work 2 What important functions does the government perform to help an economy? © 2010 South-Western, Cengage Learning

Understand Economic Systems LESSON 1.3 Objectives Describe four economic systems. Explain how demand and supply work. © 2010 South-Western, Cengage Learning

KEY TERMS Economics Production Economic System Resources Traditional Economy Command Economy Capitalist or Market Economy Mixed Economy Production Resources Profit Scarcity © 2010 South-Western, Cengage Learning

Economics There are 4 types of Economic Systems: Traditional Economy Study of how we make use of our resources There are 4 types of Economic Systems: Traditional Economy Command Economy Market Economy Mixed Economy © 2010 South-Western, Cengage Learning

Traditional Economy Ways to produce products passed from one generation to the next Parents Teach Children – how to produce goods and services. Children the pass those skills onto their children Example: Hunt, weave baskets, sewing, quilting, create jugs to carry water © 2010 South-Western, Cengage Learning

Command Economy Government owns most resources and makes most of the economic decisions Socialism: System based on public or collective ownership of the means of production Workers efforts are valued Communism: System based on communal ownership and the absence of class Working class is exploited by the ruling class Examples: China, Cuba, North Korea © 2010 South-Western, Cengage Learning

Market Economy PEOPLE, rather than the government, own the resources and RUN THE BUSINESS Businesses are free to choose which products to produce and how to produce them. SET YOUR OWN PRICES. Purpose is to earn a profit. Purpose is to earn a profit – Capitalist Economy Profit – the difference between the cost required to create the product and the money received from selling it Profit = Price - Cost © 2010 South-Western, Cengage Learning

Mixed Economy This economy is a mixture of market economy and a command economy. United States is a MIXED ECONOMY US Government sets limits on what some businesses and individuals may do Sets Rates public utility companies can change consumers Can’t discard hazardous waste in rivers Business can’t make false claims about their produch © 2010 South-Western, Cengage Learning

Economic Systems Traditional economy Command economy Economic System – the way resources are used to produce goods and services Traditional economy Produce products passed from one generation to another Did the U.S. ever have this type of economy? Command economy Government owns most resources Makes most economic decisions © 2010 South-Western, Cengage Learning

Economic Systems Market economy Mixed economy People own the resources and businesses No government intervention. Mixed economy Has both people and government control resources and businesses The US is not a pure Market Economy. Our government does control the economy in some ways. For example, it sets the rates that public utilities can charge consumers © 2010 South-Western, Cengage Learning

Production Creation of goods and services Manufacturing products such as cars or pencils © 2010 South-Western, Cengage Learning

Resources Things that are used to create other goods & services Human Resources: Skills, training, abilities people have Nonhuman Resources: raw materials, tools, and manufactured products such as: oil, tractors, and lumber used to make goods and services © 2010 South-Western, Cengage Learning

What is Scarcity?? Occurs when consumer’s wants are greater than resources available to satisfy those wants People CANNOT obtain as much of something as they want, without making sacrifice or bearing a cost. Scarcity defines a relationship – between the amount of something we want and the amount that is available © 2010 South-Western, Cengage Learning

Trade-Offs Scarcity necessitates choice; therefore Trade- Offs cannot be avoided Trade-off is a choice between alternatives that reveals the opportunity cost of selecting one alternative over the other. © 2010 South-Western, Cengage Learning

What is Opportunity Cost? Opportunity cost is the most highly valued sacrificed alternative; the value of the “next- best” choice. © 2010 South-Western, Cengage Learning

Opportunity Cost PICK ONE…. Bubblegum or Reese’s Cups? Why did you choose that one? How does this relate to opportunity cost? © 2010 South-Western, Cengage Learning

Opportunity Cost Check out this Great T-Shirt… Who wants to buy it from me? How much $ if it is used vs. brand new Which one would you pick? What is the opportunity cost to obtain the NEW shirt is this a high or low cost? © 2010 South-Western, Cengage Learning Now…. What if it was previously worn by a celebrity?

Demand and Supply Demand Supply Equilibrium © 2010 South-Western, Cengage Learning

Demand Quantity of goods and services that consumers are willing and able to buy at various prices during a given time period. Law of demands states that consumers will purchase more of a product at a lower price than a higher price. © 2010 South-Western, Cengage Learning

Demand Example Tacos are $1 and you choose to buy 4 tacos a week. Your demand for tacos would be 4 per week. What happens if the price increases to $2 per taco? You may only buy 2 tacos per week. Demand for tacos may go down as price increases. © 2010 South-Western, Cengage Learning

Supply Quantity of goods and services that producers are willing and able to make available at various prices during a given time period. Law of supply says that producers are willing to produce more of a product or service for sale at a higher price than a lower price. When prices rise, quantity supplied increases. © 2010 South-Western, Cengage Learning

Equilibrium Price at which the quantity supplied equals quantity demanded for that product. At equilibrium price, consumers are willing and able to buy the same amount of products as producers are willing and able to supply. How much are you, the buyer, willing to pay? How much are you, the seller, going to charge? Buyer and Seller must come to an agreement © 2010 South-Western, Cengage Learning

Demand Curve y Demand curve Price x Quantity © 2010 South-Western, Cengage Learning

Supply Curve y Supply curve Price x Quantity © 2010 South-Western, Cengage Learning

Equilibrium Price y Price Supply curve Demand curve $1 x Demand= Negative Slope Supply= Positive Slope Price Supply curve Demand curve $1 x 100 Quantity of Goods © 2010 South-Western, Cengage Learning

Surplus vs. Shortage Surplus is when the quantity of products exceed the amount demanded by consumers. Shortage is when consumer demand more products than producers are able to produce. © 2010 South-Western, Cengage Learning

Surplus Graph y $2 Supply curve Demand curve Price $1 x 50 100 150 Quantity © 2010 South-Western, Cengage Learning

Shortage Graph y Supply curve Demand curve Price $1 $0.50 x 75 100 125 Quantity © 2010 South-Western, Cengage Learning

Checkpoint 1.3 What are the primary characteristics of each of the four economic systems? How do demand and supply work together to determine prices and how much producers will produce? © 2010 South-Western, Cengage Learning

Shortage, Surplus or Equilibrium Milk Lobster PS4 (at release) iPhone 6 Gasoline (at 4 dollars a gallon) Housing (Nation wide) Housing in flooded parishes © 2010 South-Western, Cengage Learning

Checkpoint 1.3 answers What are the primary characteristics of each of the four economic systems? Traditional economy: the ways to produce products are passed from one generation to the next Command economy: the government owns most resources and makes most economic decisions Market economy: people, rather than the government, own the resources and run the businesses Mixed economy: a mixture of a market economy with some aspects of a command economy, for example © 2010 South-Western, Cengage Learning

Checkpoint 1.3 answers How do demand and supply work together to determine prices and how much producers will produce? Producers are willing to offer more of a product for sale at a higher price than at a lower price As the price rises, the quantity supplied increases (and price decreases) As price decreases, the quantity supplied decreases (and price increases) Supply curve Price Quantity © 2010 South-Western, Cengage Learning

Bell Work Read “Consumer Action” on page 23. Come up with 2 or 3 ideas on how she can become more profitable. © 2010 South-Western, Cengage Learning

LESSON 1.4 Consumer’s Role in the Economy Objective Explain the role of consumers in determining what is produced in a market economy. © 2010 South-Western, Cengage Learning

KEY TERMS Consumer – anyone who buys or uses products consumer economics – the study of the role consumers play in an economic system Consumer Sovereignty – the consumer in charge © 2010 South-Western, Cengage Learning

Consumers Provide Business with: Information for the economy Information about what products to offer for sales and at what price. What info can be gathered by a purchase? About what to sell and at what price Prices - Three choices (lower price, convince customer to pay higher price, stop production) © 2010 South-Western, Cengage Learning

Making Decisions in a Market Economy The profit motive The most important reason to run a business in a market economy Reduce Costs Change Price Increase Quantity of Products Sold Consumer economics Adam Smith (consumer sovereignty) You are in charge © 2010 South-Western, Cengage Learning

Making Decisions in a Market Economy Benefits of competition Why is competition good? Efficiency and Profits Profitable companies are: Selling products that are wanted Selling products that people will pay for Making more revenue than expenses © 2010 South-Western, Cengage Learning

Checkpoint 1.4 answer How does the consumer affect competition? Competition forces businesses to meet consumer’s demands. If consumers choose lower prices over better quality, then the competing businesses would lower their prices and not be as concerned with the quality of their products © 2010 South-Western, Cengage Learning

Bell Work What are some of your favorite commercials and why? What product are they trying to sell? © 2010 South-Western, Cengage Learning

LESSON 1.5 Advertising and Consumer Decisions Objectives Describe different types of advertising. Explain how you can recognize deceptive advertising. © 2010 South-Western, Cengage Learning

KEY TERMS Types of advertising Puffery Brand Informative Comparative Defensive Persuasive Deceptive Puffery © 2010 South-Western, Cengage Learning

Types of Advertising Brand advertising Informative advertising Gets you to remember a particular brand name. Use of jingles or slogans and past benefits. Usually more expensive product because of a lot of advertising Informative advertising Designed to influence you to buy a product by educating you about the benefits of the product © 2010 South-Western, Cengage Learning

Types of Advertising Comparative advertising Defensive advertising Tells you why the product is better than another. 20% more, cheaper, more efficient. Defensive advertising Often used to respond to claims made by other companies Politicians love these © 2010 South-Western, Cengage Learning

Types of Advertising Persuasive advertising Designed to appeal to your emotions to influence you Does not provide much information SPCA Benefits and costs of advertising 280 Billion spent each year Informs more people so they buy your product © 2010 South-Western, Cengage Learning

Deceptive Ads versus Puffery Deceptive – deliberately designed to mislead you and it is illegal Factually wrong Puffery Innocent exaggeration Exaggerated claims are legal “fish story” Note: Bait and Switch activities are illegal © 2010 South-Western, Cengage Learning

Deceptive Ads versus Puffery Is it free? No such thing as a free lunch. Protecting yourself from deceptive advertising Use the decision making process we talked about last week. Resources (Snopes, etc…) © 2010 South-Western, Cengage Learning

Checkpoint 1.5 answers Identify and describe characteristics of each of the types of advertising presented in this lesson. Brand advertising: helps consumers to recognize brand name Informative advertising: influences buying behavior by educating the consumer Comparative advertising: compares product qualities to competing products’ qualities Defensive advertising: counters competitors’ advertising claims Persuasive advertising: appeals to consumers’ emotions © 2010 South-Western, Cengage Learning

Checkpoint 1.5 answers How can you recognize and protect yourself from deceptive advertising? Approach buying decisions in an organized, logical manner Gather information from several sources (in addition to the advertisement) Evaluate the information Consider alternative choices © 2010 South-Western, Cengage Learning

Bell Work describe characteristics of each of the types of advertising presented below. Give an example of each. Brand Informative Comparative Defensive Persuasive Deceptive Puffery © 2010 South-Western, Cengage Learning

Bell Work describe characteristics of each of the types of advertising presented below. Give an example of each. Brand advertising: helps consumers to recognize brand name Informative advertising: influences buying behavior by educating the consumer Comparative advertising: compares product qualities to competing products’ qualities Defensive advertising: counters competitors’ advertising claims Persuasive advertising: appeals to consumers’ emotions © 2010 South-Western, Cengage Learning

LESSON 1.6 Be a Responsible Consumer Objectives Identify ways in which your consumer decisions affect other people. Explain why you should use resources responsibly. © 2010 South-Western, Cengage Learning

KEY TERM global warming – The gradual increase in the earth’s average temperature © 2010 South-Western, Cengage Learning

Consumers in Society Sharing limited resources Limited number of raw materials Heating Oil Water Protecting public safety Why do we have laws and punishments? © 2010 South-Western, Cengage Learning

Using Natural Resources Used by individuals Water Forest products Oil products (used for your car, heat) Individual waste – Depletes supplies, endangers species, pollutes environment Encourage business responsibility Buy fuel-efficient cars: Car manufacturers will design and manufacture cars the are more fuel-efficient © 2010 South-Western, Cengage Learning

Checkpoint 1.6 answers How can your consumer choices affect the people around you? The earth’s natural resources are limited and not quickly replaced To be environmentally responsible, use resources in moderation and recycle or conserve them © 2010 South-Western, Cengage Learning

Checkpoint 1.6 answers What can you do to be a more environmentally responsible consumer? Consider how your choices affect the use of resources and their impact on the environment Dispose of waste responsibly Encourage businesses to act responsibly through your buying decisions Recognize that you live in a world community and act with consideration toward others © 2010 South-Western, Cengage Learning