Need ◦ an item that is necessary for survival Want ◦ an item that is not necessary for survival but adds pleasure or comfort to life ◦ What are some examples of needs and wants?

 Apartment/house  Beeper/pager  Cable TV/premium channels (e.g., HBO)  Call waiting  Car  Cell phone  Coat  Computer/Internet access  Credit card  Disposable diapers  Garbage bags  Lottery tickets  Name brand athletic shoes  Newspaper  Paper towels  Telephone  Television  Water

Essential Goods and Essential Services ◦ Things that we need for survival (i.e. food, clothing, shelter, heating, lighting, water) Luxury Goods and Luxury Services ◦ Enjoyable but not necessary for survival (i.e. home entertainment centers and swimming pools, limousine rides, visiting a spa)

 Everyone starts at the bottom and works their way to the top of the pyramid as they attain what is at their current level.  According to those who study needs and use this pyramid, less than 1% of us reach the top of this pyramid.  Most people get as far as the self-esteem level and do not progress from there.

Family #1Family #2 Income$30,000$125,000 Groceries per Year$4,800$9,600 Percent Spent on Groceries16%7.7% 1.Income and Price  The amount of money consumers have to spend has a big influence on what they buy  Consumers want good value for their money  Consumers won ’ t spend more than what they believe an item is worth  What other factors do you look for in your purchase? *Quality *Convenience *Service *Variety *Warranty

2. Status  Some people buy goods because neighbours or friends have  Some consumers purchase expensive items even when they can’t afford them  Conspicuous consumption: the desire to flaunt purchases to impress others

3. Current Trends  Usually applies to clothing  Clothing creates an image is often seen as an indicator of status or popularity  Peer Pressure: Being influenced by friends to buy something you don’t really want

4. Customs and Habits  Special occasions and holidays increase consumer spending  People may also buy things due to habit: Friday night dinner out, Saturday movie night, playing lottery, smoker vs. non-smoker 5. Safety  Product safety has become a major issue to the public especially for cars, appliances, and children’s items (cribs)  The Canadian Standards Association (CSA) develops the standards for safety and certifies products

6. Promotion  Advertising and promotion are designed to influence consumer spending  Lifestyle advertising: showing an attractive, healthy, successful and appealing person using the product or service that is being promoted.  It is suggested that if you use the product your lifestyle will improve.

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Economic Resources (factors of production) Definition: resources needed to provide goods/services to consumers  Natural Resources ◦ raw materials that come from the earth, water and air. (e.g. soil, iron ore, gold, oil, trees, wildlife, agricultural products, fish, oxygen)  Human Resources ◦ the people who work to create the goods and services (e.g. farmers, factory workers, construction workers, website designers, teachers, nurses, pilots)  Capital Resources ◦ resources that last for a long period of time and require investment on the part of the business (e.g. buildings, equipment, tools, trucks and factories)

Economic Resources  In most cases, it takes a combination of all 3 economic resources to create the goods and services that businesses provide  What happens if there isn’t enough of an economic resource? (i.e. Oil) ◦ The price of the good/service increases ◦ Alternatives must be found for the resource

DEMAND AND SUPPLY  I am selling my iPod. ◦ Who would like to buy it? ◦ What will you pay for it?  Demand ◦ the quantity of goods or service that consumers are willing and able to buy at a particular price.

DEMAND AND SUPPLY  Law of Demand ◦ Usually consumers will increase the demand of a good or service as price decreases (which goods might this not apply to?)  Demand↑ as Price↓

WHAT CREATES DEMAND? 1. Consumer is aware of or interested in the good or service (business do this by advertising) 2. Ample supply of the good/service 3. Price is reasonable and competitive 4. The good/service must be accessible.

WHAT AFFECTS DEMAND? 1. Change in consumers’ income (increase in income usually means more goods/services are purchased, however it could mean less) 2. Change in consumers’ tastes (why don’t people buy legwarmers or McHammer pants anymore?) 3. Changes in what we expect in the future (e.g. if we think the price will decrease, we’ll wait to buy) 4. Change in population (why was this school built? why are more retirement homes being built?)

DISCUSSION QUESTIONS Think of the things that you and your friends buy or would like to buy. ◦ What products are in high demand among your age group? ◦ Why are they in demand? ◦ Think of examples from the  Fast food industry  Entertainment industry  Travel industry  Automotive industry  Recreation/sports industry that illustrate how a change in prices of related (complementary) goods affects demand?

SUPPLY  Definition: the quantity of a good or service that businesses are willing and able to provide within a range of prices that people would be willing to pay  Law of Supply: ↑S as ↑P ◦ Usually as prices increase, producers will increase the quantity of goods they provide Supply Quantity Supplied PRICEPRICE

CONDITIONS THAT AFFECT SUPPLY  A change in the number of producers (more producers increases the supply of goods and usually decreases the price); E.g. Toshiba sold the first for $500 – how much are they now?  Price of related goods (if gas prices increase, people may buy more energy efficient cars)  Change in technology (VCR sales vs. DVD sales, blu-ray versus regular dvds)  Change in expectations  Change in cost of production ◦ if you provide a lawn cutting service and the price of mowers increases – continue only if can charge more!