Chapter 1The Engine That Runs The Economy

Chapter 1.1: Decisions, Decisions

Grocery Store Products

Consumer DecisionsAs a consumer, you have the power to choose what you want to buy and where you want to buy it.

You can choose not to buy from businesses whose products you don’t like or whose prices are too high.

Bell Ringer 1Think of a business in the area

that has shut down.1.Write down the name of the

business2.Brainstorm then write down

some reasons why you think that business shut down.

Location, service, products, etc.

Consumer Decisions

You have the power to make so many different decisions that you may wonder… Where do I start?

Knowing your values is a good place to begin.

ValuesPrinciples and standards in which you live

by

Varies by person and can change over time

Life Values- things that are important to you in your life. Example: Spending time with family and friends

Classification Of Values Work Values: career/job

Working for business that respects the environment

Cultural Values: heritage Dress in clothes that shows heritage

Social Values: community Working to keep community clean

Demographic Values: where you live Values will change at different stages in your life. Living in city vs. suburbs

Vocab… Goals- things you want to accomplish

Needs- things you cannot live without

Wants- things you desire but do not need to survive

Vocab.. Opportunity Cost- value of next best

alternative whether you make a choice When making a decision, sometimes

there are things you need to sacrifice and give up.

Example: You’ve earned $60 for allowance and want to buy a new video game but also wanted new Nike Shoes. You can only afford to buy one of the two items… you must make a decision.

Vocab Continued..Long-term goals- things you

want to achieve over a period of years during your lifespan

Life-span- time from birth to death

Your Life Span

Life Span ChartYou are going to make a life span chart for

your life. Include any milestone you can remember

throughout your life as well as things you plan to do in the future.Sports playedTravelingSchool milestones/ eventsClubs/activities Future Plans: college, marriage, house,

bucket list

Chapter 1.1 Activity Review Vocab Identify 2 Short-term goals Identify 3 long-term goals

Chapter 1.2: Make Decisions

Decision Making Process 5 S’s

Specify: Identify needs and wants you are trying to fulfill.

Search: Gather Information about alternative choices

Sift: Evaluate Options. Consider opportunity cost

Select: Make a choice Study: Evaluate result

My Car Buying Example Trying to decide between buying a used Honda

civic and a brand new Honda civic. Specify- Need a reliable car to get me to and

from NIU. Good gas mileage, sharp looking, power locks and windows, appealing to the eye.

Search- Go to the car dealer and look at options.

Sift- Choose between options and consider monthly payments

Select- 2009 Honda Civic- cheaper payments Study- Happy with my decision

Decision Making Process Rational Buying Decision

Choice made in an organized, logical manner

Impulse Buying Purchase Purchase made on a whim, without using

a decision making process. Buying without considering alternatives.

Decision Making Scenario Sammie is an Oswego senior and has to

make a decision of which college to attend next school year. Sammie knows she wants the option of coming home on some weekends so she would like a school that is not too far away. Also, her parents are willing to pay for college as long as the price is within reason (middle to low end). Sammie is considering majoring in education, but still wants to explore her options, so it is important that the school has a variety of majors. Last, Sammie is a very involved student at OHS and wants to get involved with extracurricular activities such as clubs, sports, and attending sporting events.

Help Sammie through the decision making process… Use The Decision Making Process

Specify- Identify Needs and Wants Search- Gather Info Sift- Evaluate options

Select 3-4 colleges Sammie should attend Write criteria next to each college Select

Choose A college Study

Chapter 1.3Understanding Economic Systems

Economic Systems

• Every nation has an Economic System.

• Economic System• The way a nation uses resources to produce goods and services.

Production Creation of goods and services.

Manufacturing products such as cars or pencils.

Resources• Things that are used to create

other goods and services• Human Resources: skills, training, abilities people have

• Nonhuman Resources: raw materials, tools, and manufactured products such as: oil, tractors, and lumber used to make goods and services

Economics• Study of how we make use of

our resources.• There are 4 types:

• Traditional Economy• Command Economy• Market Economy• Mixed Economy

Traditional Economy• Ways to produce products are

passed from one generation to the next

• Parents teach children how to produce goods and services.

• Children then pass those skills onto their children.

• Example: hunt, weave baskets and create jugs to carry water

Command Economy• Government owns most resources and

makes most of the economic decisions• Government determines prices, styles, colors

and even amounts of products produced.• 2 Types:

• Socialism: System based on public or collective ownership of the means of production. • Workers efforts are valued

• Communism: System based on communal ownership and the absence of class.• Working class is exploited by the ruling class

• Examples: China, Cuba, North Korea

Market Economy• People, rather than the

government, own the resources and run the businesses.

• Businesses are free to choose which products to produce and how to produce them. Set own prices.

• Purpose is to earn a profit• Profit= Price-Cost

Mixed Economy• Mixture of a market economy and a

command economy.• United States is a Mixed economy• US Government sets limits on what

some businesses and individuals may do• Sets rates public utility companies can charge

consumers• Cant discard hazardous waste in rivers• Business cant make false claims about their

products

WHAT IS SCARCITY?• Occurs when consumers wants

are greater than resources available to satisfy those wants.

• People cannot obtain as much of something as they want, without making sacrifice or bearing a cost.

• Scarcity defines a relationship – between the amount of something we want and the amount that is available.

WHAT IS SCARCITY? SCARCITY NECESSITATES CHOICE; THEREFORE

TRADE-OFFS CANNOT BE AVOIDED

Hey guys... check out these ipads I found… Does anyone want one?

How should we solve this DILEMMA?

WHAT IS A TRADE-OFF?• Trade-off is a

choice between alternatives that reveals the opportunity cost of selecting one alternative over the other.

WHAT IS OPPORTUNITY COST?

• Opportunity cost is the most highly valued sacrificed alternative; the value of the “next-best” choice.

DemandQuantity of goods and services

that consumers are willing and able to buy at various prices during a given time period.

Law of demands states that consumers will purchase more of a product at a lower price than a higher price.

Demand ExampleTacos are $1 and you choose to buy

4 tacos a week. Your demand for tacos would be 4

per week.What happens if price increases to

$2 per taco?You may only buy 2 tacos per week.Demand for tacos may go down

as prices increase

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Supply Quantity of a product that producers

are willing and able to make available for sale at various prices over a given time.

Law of supply says that producers are willing to offer more of a product for sale at a higher price than a lower price.

When prices rise, quantity supplied increases

Equilibrium• Price at which the quantity supplied

equals quantity demanded of that product.• At equilibrium price, consumers are willing

and able to buy the same amount of products as producers are willing and able to supply.

• How much are you, the buyer, willing to pay?

• How much are you, the seller, going to charge?

• Come to an agreement

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Equilibrium PriceDemand= Negative Slope

Supply= Positive Slope

Surplus vs. Shortage• Surplus is when the quantity of

products exceed the amount demanded by consumers.

• Shortage is when consumer demand more products than producers are able to produce.

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Critical Thinking

Read the pet shop scenario and answer the 2 questions that follow.

Utopia

Story Of AtlantisGreek Mythology

Poseidon, the god of the ocean and waters received this island of paradise.

The first king of the island was Atlas which was Posiedon’s son…. Naming the Island Atlantis.

The people of Atlantis, for the first few generations, obeyed laws and Poseidon.

Story Of Atlantis Continued… But as the divine nature of Poseidon was getting

more and more diluted in them, they began loosing their pure spirit and engaged in pursuing wealth and power. This invoked the wrath of Zeus, the king of all Greek gods, who decided to punish the unrighteous people of Atlantis.

Here the story ends, either because it got lost or because it was never finished. All we know is that the island and its whole culture disappeared under the ocean and has been lost ever since.

Story Of Atlantis Assignment Think about the type of society you would like to

establish and the needs of your colony. Study the list of applicants

You can only take 15 people with you You must choose 1 person from each cluster There must be an equal number of men and women (8

and 8 including you) Think about the type of economy you want to have

Tradition Command Market Mixed

Make a List of tools, supplies, etc that you would need and want to take with you for the 2 year period.

Bell Ringer 2Story Of Atlantis QuestionsWhat challenges did you face in

being the “leader” of this colony?

What strategies did you use in deciding who you should “pick” or take with you.

Was it easy to determine laws that should be used on the island?

Making Decisions In A Market EconomyChapter 1.4

Market Economy Consumers are free to buy Producers are free to sell Both parties get what they want

Information For The Economy Merchant

Retailer

Manufacturer Person who makes the merchandise for

stores When the quantity is low, retailers receive

more product from manufacturer.

Consumer Anyone who buys or uses products

EVERYONE is a consumer!

Consumer Economics The study of the role consumers play in an

economic system. Consumer Sovereignty

To be in charge Consumers choices determine what goods

and services are produced.

Competition Contest among sellers to win customers.

Competition exists when several companies offer similar products for sale.

Example: Apple iPhones. AT&T, Sprint, Verizon

Profitable Companies 1. Sell products consumers want to buy 2. Sell products at a price consumers

are willing to pay. 3. Taking in more money from sales

than the company spends to produce product.

Logos

Slogans

Company Development Get into groups of 2-3 Think of your own business

Come up with a name for your business Identify what product or service is being

offered Come up with a Logo for your company Create a slogan to advertise your product Identify ways you would promote your

company You may create this on poster board or on

the computer!

Advertising and Consumer DecisionsChapter 1.5

AdvertisingA paid form of communication sent out by a business about its products or services.

Ads try to influence and persuade consumers to buy their product.

Costs of AdvertisingBusinesses advertise because they believe it will help them earn profit.

The cost of advertising is built into the price you pay when you buy goods and services.

Benefits of Advertising Consumers benefit from advertising

because increased sales generated by advertising allow businesses to produce a higher volume of products.

Volume= production cost = lower prices for consumers

6 types of advertising Brand Advertising Informative Advertising Comparative Advertising Defensive Advertising Persuasive Advertising Deceptive Advertising

BrandPurpose is to cause you to remember a particular brand name.

The advertiser hopes that if you remember the brand name, you will be more likely to buy the product when you shop.Use of Jingles and Slogans

InformativeDesigned to influence you to

buy a product by educating you about the products benefits.

Often used for complex or highly technical products that consumers may not understand, such as computers or automobiles.

ComparativeTries to win you by comparing its product’s qualities to those of a competing product.

Purpose is to get you to buy the advertised product instead of the targeted competing product.

Defensive Responds to claims made by other

companies.

If the producer of brand X detergent claims its product removes stains better than Brand Y, the producer of Brand Y may respond by pointing out its product is color-safe and will not cause color fading after repeated washing the way brand X does.

PersuasiveDesigned to appeal to your emotions to influence you to buy, but it doesn’t provide much useful information.

These ads influence you that if you buy their product you will be happier, more successful, or more satisfied.

Deceptive Advertising Deliberately designed to mislead you Comparing your product to that of a

competitor without scientific studies to substantiate your claims could lead to charges of deception.

Saying two out of three people prefer your pizza when you have no studies to substantiate the claim crosses the line to deception.

Illegal

Puffery Puffery

Innocent exaggeration Puffery serves to "puff up" an exaggerated

image of what is being described This is done to make your product look better

than the competition Puffery claims are subjective and are a matter of

opinion. A hair salon may say it offers "the best" service, but

"best" is a matter of opinion. But if the salon claims that is has won more awards than any other salon in the city, this is something that can be measured -- it is an objective claim and not puffery.

Puffery often uses superlatives such as "best," "fastest," "tastiest" and "freshest," for instance.

Legal

Identify the type of advertisement

1. Fresh Deodorant- you’ll feel Fresh all day long!2. Wagner’s Extra Crunchy chips are the best for dips!3. Al’s Healthy Subs have fewer calories than Nero’s Subs4. Nero’s Subs have 50% more calories than Al’s subs because they are 50% larger than Al’s Subs. Don’t be fooled by false claims!5. Your neighborhood Bank- Our low interest home-equity loan offers no closing costs and no application fees.