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UGA FHCE 3100 - Ch.7 (advertising)

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FHCE 3100 Lecture 11Outline of Current Lecture II. Chapter 7: Consumer decision making and the influence of advertising Current Lecture *Likely that chapter 4 will show up on this exam Our goal as consumers is to make the best decisions possible so that we maximize our utility/satisfaction… We want to make the best financial decisions Decision Making and Time Time can not be created, we cannot “make time” Time cannot be stored, we cannot “save time” All we can do is spend it How we choose to spend it should represent what matters to us in life. The Ultimate time management question What is the best use of my time RIGHT NOW? Here in class!  What can you do with the time you are given at this moment? Multi-task to make the best use of your time.  Parkinson’s Law Beware of Parkinson’s Law with regards to time— A job expands to fill the time available to accomplish the task, such as finding and purchasing a product  This is why people can spend all day shopping and buy the same thing they could have over their lunch hour  Ex) faculty meeting in 2 hours…does she have time to go to mall, buy new blouse, put it on, and be back for meeting? Not a good use of time. Do this the Saturday before Ex) Just because you give 6 hours to prep for exam, you do not need to use all 6. Research shows there is time wasted, you could have knocked it out in 3. Be mindful of how much time we as consumers waste. These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute. Pareto Principle 80/20 rule 20% of the time expended produces 80% of the results ex) 20% of the time you are allocating towards studying in total is going to net you a B or whatever grade you are looking for  80% of the time expended results in only 20% of outcomes So the other 80% is time you are wasting studying that could be spent elsewhere Which means…we waste a lot of time *Doing your laundry has the same rule…80% of the laundry you wash is only 20% of yourclothing  80% of what you wash is your favorites, the stuff you wear over and over  Don’t take ADD medicine if you aren’t prescribed, you need the ADD also during test to function the same way  Rules of Thumb As consumers, we can reduce the amount of time we spend making decisions by using “rules of thumb” Principles that guide purchases such as only buying certain brands or only shopping at certain stores or buying certain styles  Ex) Professor Moorman’s rule of thumb is shoe must have a heel  Other Rules of Thumb Seals of Approval (i.e. Good Housekeeping)  Trademarks (i.e. brands)  Rule of Thumb: Price Price along with our income and our preferences helps determine our consumption choices Most consumers try to stay within their budget constraints *this is probably one of our biggest constraints when making decisions  Consumer choices (indifference curves) without constraints: infinite amount of food and clothing. Indifference curve is a diagram depecting equal levels of satisfaction for a consumer faced with choices of bundles of goods graph like this will be on exam it is an indication of your preferences, being different according to your preferences  Extending curves = increased quality Ex) Go to store—either going to buy all clothes or all food. Can I buy all clothes with my money? Yes. Can I buy all food with my money? Yes.  Each little dots are a combination of food or clothing. Indifference curve tells me that any point on it, I don’t care. I am indifferent to how much clothes/food I get. I can get less or more. I don’t care what combination. The curve tells you this. But, DIFFEREnce between indifference curve A, B, and C you as the consumer want to be on C (becauseyou get more). The further away the indiffence curve it is of that point of origin, MEANS MORE!  Indifference curves (*graph similar on exam*) If not this one itself!!! Ths is looking at the quantity of the two different goods in question You as a consumer, want to be on point…? DOESN’T MATTER! On the same indifference curve (indifference curve 3---doesn’t matter which point you are on) YOU DON’T CARE. But, you know that indifference curve 3 is the best one, you are on the highest one. You are the most satisfied.  likely on exam see graph similar to this and I will ask you to identify which of those two bundles you want to be x…you will tell me IT DOES NOT MATTER!!! YOU DON’T CARE! Then maybe put a point on indifference curve 1 and on curve 3…now you prefer INDIFFERENCE CURVE 3 because it is the furthest out  An individual should choose to consume goods at the point where the most preferred available indifference curve is tangent (touches) to their budget constraint  That is, the indifference curve tangent to the budget constraint represents the maximum utility obtained utilizing the entire budget  Consumer choices with constraints (budget): limited amount of food and clothing*Which indifference curve does it lie tangent to? A!!! I would prefer to be at C orat B, I don’t really want to be on A because im getting less of both goods, but I am constrained financially. A is the only option.  The budget constraint has made 2 and 3 unaffordable, cant get to them  Budget Constraint The quantity of goods that you can buy, given: Set prices Limited income  It shows all possible combinations of X and Y the consumer can buy when spending all ofher income *of the two, you have a little bit of control over your income Li’s demand for wheat and rice Li’s demand for wheat and rice depends upon the price for these two goods, her income,and her preferences Suppose we look first at her budget constraint Wheat costs $4/lb Rice costs $2/lb Li has $40 income *exam—if I tell you “if wheat costs 4/lb while rice is 2/lb and she has $40 of income. With just that info, can you then tell me quantity of each good that she will purchase? If she spends all 40 on wheat, she can buy 10 pounds If she spends all 40 on rice, she can buy 20 pounds This is on the exam Backwards version too—so you could get either Wheat @ 4/lb results in a purchase of 10 lbs of wheat. 40/4 = 10 Rice @ 2/lb results in purchase of 20 lbs of rice. 40/2 =20  TTYP: Graph of LI’s


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