Chapter 1 Consumer economics is the study of how people deal with scarcity fulfill needs and select among alternative goods services and actions It provides an understanding of how the marketplace works what our role is in it and how our choices affect our lifestyle The challenge we as citizens face today is to overcome passivity and hesitation and to take the steps to join in The main objective is to develop the ability to apply consumer economics knowledge to regulatory and social issues as well as to personal buying decisions Who consumes and why Consumers are individuals or grops such as families who obtain use maintain and dispose of products and services to increase life satisfaction and fulfill needs Cabinet castaways products we buy and don t even use They get pushed to the back of the shelf Consumerism refers to the belief that goods give meaning to individuals and their roles in society This combination of consumption social roles and politics was first voiced by Adam Smith 1723 1790 the founder of modern economics He argued in his book An Inquiry into the Nature of Causes of the Wealth of Nations 1776 that the essential task of coordinating national economics should fall on consumers 1 Smith said consumers could be trusted in the marketplace because they are buying things in their best interest 2 His philosophy of the inivisible hand was directed as much against monopoly as government 3 To be human is to exchange freely Goods and services Goods are tangible objects Things you can see and feel such as a car Services are intangible objects Work done to satisfy or provide for others such as a catering service Injurious consumption happens when individuals make consumption decisions that will have negative consequences affecting their quality of life in the long run Caveat Emptor is translated as May the buyer beware It is an integral part of the study of consumer economics According to Abraham Maslow humans have basic needs that have to be met before moving to a higher order need A household includes the related family members and all the unrelated family members who share a housing unit Human needs Mark Oleson said there is a relationship between money and Maslow s hierarchy of needs He said that not all individuals will have the same needs or combination of needs at the same time Demography and Demographics Demography is the study of human populations including characteristics such as size growth density distribution movement and other vital statistics Demographics refers to the data used to describe populations or subgroups Consumption Process Influences on Consumer Style The consumption process can be broken down into 5 groups 1 Awareness Something is needed or desired 2 Thinking Wondering about the benefits of the purchase where you can get it 3 Planning This is where the specific course of action is chosen 4 5 Evaluating Are you happy with the product Implementing Acting Needs are things that are deemed necessary such as food or water and goods are things wished for or desired such as an expensive car Goals are your end results things you are striving for and are based on values Consumers have a characteristic way of prebuying buying and postbuying that could be called their consumer style patterns of behaving or ways of making financial decisions and acting on them Seven factors that influence consumer style are 1 Economics The economy is said to follow a business cycle 2 History Your background affects how you purchase things 3 Culture 4 Personality 5 Biology or environment 6 Technology 7 Politics Economics is the study of or science of production distribution and consumption It concerns itself with how wealth is created and managed Real GDP Fluctuations occur in the real gross domestic product which is a measure of the value of all the goods and services newly produced in a country during some period of time usually a year or a quarter Inflation is a steady increase in prices And deflation indicates falling prices The economy is a business cycle made up of 3 stages Economics and the business cycle 1 Expansion is a period of prosperity growth and increased retail sales and housing starts 2 Recession is a temporary moderate decline in the economy 3 Recovery is the period in the business cycle when economic activity picks up leads to expansion Scarcity Unlimited wants combined with limited supplies creates scarcity a condition which there is an insufficient amount or supply a shortage In economic theory as long as a human need is not satisfied there is scarcity Supply demand and equilibrium price Equilibrium price This is reached when supply and demand are equal Scarcity affects supply According to the law of supply as the supply of a good or service goes up the price comes down In the law of demand as the price of a good or service rises the quantity demanded of that good or service falls The price paid for goods and services reacts to these laws Supply demand and demographics Baby Boomer Generation 1946 1964 Generation X 1965 1976 Generation Y 1977 1994 Risk and Opportunity Costs 2 concepts that affect consumer purchasing behavior Risk is the possibility or perception of harm suffering danger or loss A fear of loss is called loss aversion Three types of risks 1 Time risk 2 Security risk 3 Privacy risk In order to reduce perceived risk individuals diminish their fears by finding out all they can about a product before purchasing it Opportunity refers to a favorable outlook a chance for progress advancement and action Economics assumes that people will try to increase their satisfaction by taking advantage of opportunities Every choice made means that something else is given up This is referred to as opportunity cost Opportunity cost is related to the concept of trade offs TO get something that is desired it is necessary to sacrifice something else because of scarcity Three questions or problems that economics must find a way to solve What is to be produced A product is anything a consumer acquires or perceives to need How are these goods produced For whom are the goods produced Market Economy and Competition Market economy in this economy exchanges are controlled by marketplace forces of demand and supply rather than outside forces such as government control A market economy is characterized by the free exchange of goods and services in markets and by freely determined prices This is contrasted with the command or centrally planned economy wherein most decisions