1. © Goodheart-Willcox Co., Inc.

2. 3 Consumers in the Economy: An Overview

3. © Goodheart-Willcox Co., Inc. Chapter Objectives Relate your consumer economic activities to your financial well-being and to the state of the overall economy. Explain how economic conditions affect job opportunities and standard of living. Summarize how consumer spending influences overall economic conditions in a market economy. continued

4. © Goodheart-Willcox Co., Inc. Chapter Objectives Describe the impact of consumer and government borrowing on the economy. Give examples of ways consumer economic problems arise from market characteristics. Outline consumer economic problems that result from consumer mistakes.

5. © Goodheart-Willcox Co., Inc. Economic Activities of Consumers Economic activities of consumers include –e–earning –s–spending –s–saving –b–borrowing –i–insuring –i–investing –p–paying taxes

6. © Goodheart-Willcox Co., Inc. Earning Your Way You can choose –t–the field in which you work –y–your level of education –h–how much training you attain continued

7. © Goodheart-Willcox Co., Inc. Earning Your Way Ability to find work depends on your –j–job skills –e–experience –e–education –c–career choice –d–demand for workers in your chosen field Ability to stay employed and advance depends on your job performance continued

8. © Goodheart-Willcox Co., Inc. Earning Your Way Your earning power and job performance determine your personal standard of living A higher standard of living means a higher quality of life for most people Your standard of living and income should rise as you advance on the job

9. © Goodheart-Willcox Co., Inc. Earnings and the Economy Earning activities of consumers contribute to a country’s wealth The national standard of living is the level of prosperity in the country continued

10. © Goodheart-Willcox Co., Inc. Earnings and the Economy The U.S. has one of the highest standards of living in the world continued

11. © Goodheart-Willcox Co., Inc. Earnings and the Economy Measures of a nation’s prosperity –G–GDP per capita—the national GDP divided by the population of a country –L–Labor productivity

12. © Goodheart-Willcox Co., Inc. GDP Per Capita High or rising GDP per capita means –i–incomes are high or rising –m–more goods and services are available to each person –p–people are consuming more –s–standards of living are high or rising continued

13. © Goodheart-Willcox Co., Inc. GDP Per Capita Low or falling GDP per capita means –i–incomes are low or falling –f–fewer goods and services are available to each person –p–people are consuming less –s–standards of living are low or falling continued

14. © Goodheart-Willcox Co., Inc. GDP Per Capita There are problems with using GDP per capita as a measure of national prosperity –I–It assumes everyone gets an equal share of goods and services produced –I–It disregards unpaid work, such as housework, child care, and volunteer work

15. © Goodheart-Willcox Co., Inc. Labor Productivity High labor productivity indicates a healthy economy Productive workers produce more and can increase their earnings continued

16. © Goodheart-Willcox Co., Inc. Labor Productivity To raise labor productivity, businesses and governments invest in –c–capital, such as factories and machinery –r–research and technology –t–transportation, communication, and energy –e–education and training of the workforce continued

17. © Goodheart-Willcox Co., Inc. Labor Productivity By raising the productivity of its workforce, a nation can raise its GDP and create wealth State of the economy determines job opportunities and earnings of workers

18. © Goodheart-Willcox Co., Inc. Spending and the Economy Consumers in a market economy make their own spending choices continued

19. © Goodheart-Willcox Co., Inc. Spending and the Economy Spending decisions of consumers create demand for goods and services they buy As a group, consumers determine the success or failure of specific goods, services, and businesses continued

20. © Goodheart-Willcox Co., Inc. Spending and the Economy Optimistic consumers tend to spend and borrow more, which creates –g–greater demand for goods and services –g–growth of businesses to meet increased demand –m–more jobs –a–a sense of prosperity continued

21. © Goodheart-Willcox Co., Inc. Spending and the Economy Pessimistic consumers tend to spend and borrow less, which –l–lowers demand for goods and services –l–lowers sales and slows business growth –m–makes jobs harder to find –c–can lead to a recession

22. © Goodheart-Willcox Co., Inc. Saving Your Money Savings is anything that improves a person’s financial position continued

23. © Goodheart-Willcox Co., Inc. Saving Your Money Savings include –c–cash –i–investments –h–home improvements –c–cash value of insurance policies –d–durable goods

24. © Goodheart-Willcox Co., Inc. Saving and the Economy Savings are put into financial institutions Financial institutions loan money to businesses and other consumers Loans pay for business growth, building construction, home purchases, and more

25. © Goodheart-Willcox Co., Inc. Borrowing to Spend Consumer credit lets you buy now and pay later Credit helps consumers pay for major and unexpected purchases Credit is costly; use of credit reduces future income

26. © Goodheart-Willcox Co., Inc. Borrowing and the Economy Borrowing increases money in circulation and demand for goods and services continued

27. © Goodheart-Willcox Co., Inc. Borrowing and the Economy Borrowing can – cause prices to rise, resulting in inflation –d–decrease future demand –t–threaten long-term economic prosperity

28. © Goodheart-Willcox Co., Inc. In Your Opinion Does using credit do more harm than good to the economy? to individuals?

29. © Goodheart-Willcox Co., Inc. Insuring Against Financial Risks Insurance is a risk-management tool Policyholders join others in insurance pools and make payments to insurance companies Insurance companies invest payments in business enterprises Payments and their earnings pay the bills of policyholders who suffer losses

30. © Goodheart-Willcox Co., Inc. Insurance and the Economy Insurance contributes to overall economic stability by –s–spreading financial risks –s–stabilizing incomes of people who suffer serious financial losses Insurance company investments contribute to growth

31. © Goodheart-Willcox Co., Inc. Investing for the Future An investment is an asset that increases wealth over time Investments also carry risk of loss continued

32. © Goodheart-Willcox Co., Inc. Investing for the Future Types of investments include –s–securities (stocks, bonds, mutual funds) –r–real estate –b–business ownership –c–certain insurance policies –v–valuable items

33. © Goodheart-Willcox Co., Inc. Investment and the Economy Investments pay for –b–business growth and activity –r–research and development of new technology –m–marketing of new products and services Benefits of investments ripple through the economy

34. © Goodheart-Willcox Co., Inc. Paying Taxes for Government Services Tax revenues pay for goods and services that government provides Voters indirectly decide the level of taxes and what they want to “buy” from government Types of taxes include income tax, sales tax, property tax

35. © Goodheart-Willcox Co., Inc. Taxes, Government Spending, and the Economy Positives of government spending –I–It creates demand for goods and services –I–It stimulates the economy continued

36. © Goodheart-Willcox Co., Inc. Taxes, Government Spending, and the Economy Negatives of government spending: –I–It can drive up prices and cause inflation –I–It can drive up the national debt (deficit spending)

37. © Goodheart-Willcox Co., Inc. Economic Problems of Consumers in a Market Economy A confusing variety of products Some questionable selling methods Conflict of interest between consumers and sellers

38. © Goodheart-Willcox Co., Inc. Confusing Variety of Products The marketplace contains many sellers There are many new products and services created each day Consumers have many options and choices to make

39. © Goodheart-Willcox Co., Inc. Questionable Selling Methods High-pressure selling False advertising Contests “Free” offers

40. © Goodheart-Willcox Co., Inc. Conflict of Interest Sellers want to charge the highest price they can get Consumers want the best quality at the lowest price Forces of supply and demand balance the needs of sellers and consumers

41. © Goodheart-Willcox Co., Inc. Consumer Mistakes Leading to Problems Lack of planning Failure to use information Impulse buying and overspending Poor communication

42. © Goodheart-Willcox Co., Inc. Lack of Planning When consumers fail to plan, it can be –d–difficult to pay bills –h–hard to save for big expenses and future needs –d–difficult to use credit wisely –e–easy to buy things that do not fulfill your needs and goals

43. © Goodheart-Willcox Co., Inc. Failure to Use Information Consumers sometimes fail to investigate, ask questions, and know exactly what they are buying continued

44. © Goodheart-Willcox Co., Inc. Failure to Use Information Failure to use information can be costly, disappointing, and even dangerous Information sources include salespeople, the Internet, and consumer magazines

45. © Goodheart-Willcox Co., Inc. Impulse Buying and Overspending Consumers sometimes buy without thinking about needs, goals, and consequences Impulse buying can result in overspending and thoughtless spending, especially among credit card users

46. © Goodheart-Willcox Co., Inc. Poor Communication Includes the failure to complain when necessary Can be costly

47. © Goodheart-Willcox Co., Inc. Central Ideas of the Chapter The economic decisions of consumers impact the overall economy. Smart consumers avoid the pitfalls that a market economy can create.

48. © Goodheart-Willcox Co., Inc. Glossary of Key Terms asset. An item of value that a person owns, such as cash, stocks, bonds, real estate, and personal possessions. durable goods. Products that have lasting value, such as furniture, appliances, and cars. GDP per capita. The market value of final goods and services produced per person. income tax. A tax on the earnings of individuals and corporations. Back

49. © Goodheart-Willcox Co., Inc. Glossary of Key Terms investment. An asset bought to increase wealth over time, but that carries the risk of loss. labor productivity. The value of the goods and services a worker creates in a given time. property tax. Tax paid on real estate owned by individuals and corporations. prosperity. A time period of growth and financial well-being. Back

50. © Goodheart-Willcox Co., Inc. Glossary of Key Terms sales tax. Tax added to the price of goods and services you buy. standard of living. The overall level of comfort of a person, household, or population as measured by the amount of goods and services consumed Back