1. Consumption, Income, and Decision making

2. Introduction
As we discussed you and every other consumer play an important role in the economic system
A consumer is any person or group that buys or uses goods and services to satisfy personal needs and wants
Consumers buy a wide variety of things – food, clothing, automobiles and movie tickets
In this section you’ll learn how to spend or not to spend your income wisely

3. Disposable and Discretionary Income
A person’s role as a consumer depends on his or her ability to consume
Which in turn depends on available income and how much of it a person chooses to spend now or save for future spending

4. Disposable and Discretionary Income
Income can be both disposable and discretionary
Disposable income is the money income a person has left after all taxes has been paid
People spend their disposable income on all kinds of goods and services.
First people buy the necessities: food, clothing, and housing.

5. Disposable and Discretionary Income
Any leftover income, which can be saved or spent on extras such as luxury items or entertainment are considered discretionary income
Education, occupation, experience, and health can all make differences in a person’s earning power and thus his or her ability to consume

6. Disposable and Discretionary Income
Where a person lives can also influence how much he or she earns
For Example:
People who live in a city tend to make more than those who live in rural areas
Wages in some regions of the country tend to be higher than in other regions

7. Disposable and Discretionary Income
Regardless of the size of a person’s income, spending that income requires constant decision making
As a consumer, each person has a series of choices to make

8. Decision Making as a Consumer
Making consumer decisions is based on three parts:
Deciding to spend your money
Deciding on the Right Purchase
Deciding how to use your purchase

9. Decision Making as a Consumer
The first decision is whether to buy the item or not.
How many times do you actually think about the reasons for the purchase you are about to make?
Do you think about whether you really need them or not?
Do you consider the trade-offs?

10. Scarce Resources
After you have decided to make a purchase, at least two scarce resources are involved:
Income
Time
Suppose you decide you want to buy a laptop
The time spent visiting stores checking prices is a cost to you.
This time cant be used for anything else

11. Opportunity Cost What is an opportunity cost?
Almost all aspects of decision making involves opportunity cost.
You must choose between a low, medium to high quality product
In general a high quality product (name brand) will cost more than a low quality product (generic brand)

12. Rational Choice
When you are making a choice based on opportunity cost you are engaging in a rational choice
Economists define rational choice as the alternative that has the greatest perceived value
Rational choice involves choosing the best quality item that is the least expensive from among comparable quality products

13. Rational Choice
As a consumer you will make these kind of choices when you purchase the goods and services you believe best satisfy your wants
Do not get the impression that wise consumers will all make the same choices
Remember the definition of rational choices, the alternative that has the greatest perceived value

14. Review What is a consumer?
What is the difference between disposable and discretionary income?
These are the 3 parts to making a consumer decision.
After you have decided to make a purchase, what two scarce resources are involved?
What is a rational choice?

15. Introduction
A consumer is any person or group that buys or uses goods and services to satisfy personal needs and wants

16. Disposable and Discretionary Income
Disposable income is the money income a person has left after all taxes has been paid
People spend their disposable income on all kinds of goods and services.
First people buy the necessities: food, clothing, and housing.
Any leftover income, which can be saved or spent on extras such as luxury items or entertainment are considered discretionary income

17. Decision Making as a Consumer
Making consumer decisions is based on three parts:
Deciding to spend your money
Deciding on the Right Purchase
Deciding how to use your purchase

18. Scarce Resources
After you have decided to make a purchase, at least two scarce resources are involved:
Income
Time

19. Rational Choice
When you are making a choice based on opportunity cost you are engaging in a rational choice
Economists define rational choice as the alternative that has the greatest perceived value

20. Class work Pg
Pg 65 1,2