Chapter 1 Consumers in a Changing World Economy The word Economy comes from a Greek word for one who manages a household Economics study or science of production distribution consumption Goldsmith study of how society manages its scarce resources Miller Scarcity society has limited resources and therefore cannot produce all the goods and services people wish to have The management of society s resources is important because resources are scarce Scarcity implies choice and choice implies cost Not enough resources are available to satisfy one s needs and want and choices have to be made about their use Economics study How people make decisions How people interact with each other The forces and trends that affect the economy as a whole Consumer Economics the study of how people deal with scarcity fulfill needs and select among alternative goods services and actions Consumer Economics lead to careers in consumer protection consumer advocacy policy making education law business management government marketing Why Study consumer economics o 1 To apply course knowledge to social issues Recent economic legislation will have an impact on Healthcare Cleaner coal burning technology Screening tests for newborns 2 To overcome passivity to understand and own your place in the economy Down s syndrome screening o o 3 To become a Consumer Protection Advocate Standing up for consumer rights One person can make a difference Ralph Nader automobiles Erin Brockovich environmental laws Consumers individuals and groups who obtain use maintain and dispose of goods products and services to fulfill needs and increase satisfaction Goods tangible objects Car Services intangible actions of work done catering services Satisfaction also known as utility satisfaction well being Adam Smith 1776 Author of An Inquiry into the Nature Causes of the Wealth of Nations stated that consumers act in their own self interest and markets work with the invisible hand The founder of modern economics aka the Father of modern economics Felt consumers should be given the freedom and authority to run their own economic affairs The U S s founding fathers liked the idea that wealth should be based on goods and services produced and consumed by consumers Capitalism a social system based on the recognition of individual rights Under capitalism the state is separated from economics production and trade just like the state is separated from church religion Being able to freely choose among a vast array of commodities gives people a sense of freedom Consumerism belief that goods give meaning to individuals and their roles in society Buying goods and services is an act of trust Because we assume our purchases will increase our satisfaction however Consumption may not always bring satisfaction Unsatisfactory products Injurious consumption negative in the long run Consumer fraud Needs the barest minimum physical necessities that allow you to survive Marslow s Hierarchy of Needs Wants what people would acquire if their resources were unlimited Resources things used to produce other things to satisfy people s needs and wants Johnny Depp vs Bacon Provide the means to satisfy the family system s demands o Material Resources non human oil car clothes o Human Resources personal characteristics friends IQ time management The Consumption Process Because there are so many aspects of consumption it can be thought of as a process 1 Awareness what are needs and wants A stimulus lets us know that something is needed or desired Ex A Broken computer makes us aware another one is needed 2 Thinking gather information about the product in question The mental exploration of the possibilities weighing pros and cons and gathering information o o o o o o Random set of thoughts 3 Planning shopping around o Deciding ordered steps of action needed to make the purchase of a reality You actually sit down at the computer and surf the web for the best price for the product 4 Implementing buying 5 Evaluating would you re purchase Spend time reflecting on your outcome Factors that influence consumers Economics Unemployment rate Interest rates Inflation rates History Economics the condition of national and worldwide economies during times of decision making The background history of each person influences his or her decisions This include our own personal histories and also the histories of our families The history of the area in which the person resides influences consumer decision making as well o Generally refers to patterns of human activity and the symbolic structures that give such activity It is the way people live in accordance to beliefs language history or the way they dress Culture includes the groups in which an individual or family resides and their behaviors or Consumer culture significance traditions o o o o o o o o o o o o o o Individual traits Physiological needs Age eye color hair color type weight height Thirst hunger safety housing protection Desire for technology Technology includes the methods and materials that individuals use to get what they want Including machines techniques material objects and processes Political area government standards Politics affect our economic decision making Policies impact our consumption we have to buy auto insurance but we do not have to buy health insurance Economics the Business Cycle Economics the study of how societies use scarce resources to produce valuable commodities and distribute them among different people Business Cycle refers to the periodic fluctuations of economic activity Expansion prosperity growth high output low unemployment increased retail sales and housing Recession temporary moderate decline or downturn in economy declining output income employment and Recovery when economic activity picks up leading to expansion Production on the rise spending on the rise trade Usually 6 months to a year Deep recession is called a Depression unemployment declines consumer confidence rises Sometimes includes a rise in IR Real Gross Domestic Product A measure of the value of all goods and services newly produced in a country during some period of time usually one year or one quarter adjusted for inflation Inflation the steady increase of prices Makes the purchasing power of your dollar smaller Deflation indicates falling prices Supply demand equilibrium price and demographics After 9 11 there a huge America flag shortage why demand available to consumers Demand increased as a result the available supply could