© goodheart-willcox co., inc.. 3 consumers in the economy: an overview


3Consumers in the

Economy: An Overview


Chapter Objectives

• Relate your consumer economic activities to your financial well-being and to the state of the overall economy.

• Explain how economic conditions affect job opportunities and standard of living.

• Summarize how consumer spending influences overall economic conditions in a market economy.

continued


Chapter Objectives

• Describe the impact of consumer and government borrowing on the economy.

• Give examples of ways consumer economic problems arise from market characteristics.

• Outline consumer economic problems that result from consumer mistakes.


Economic Activities of Consumers

• Economic activities of consumers include– earning– spending– saving– borrowing

– insuring– investing– paying taxes


Earning Your Way

• You can choose– the field in

which you work

– your level of education

– how much training you attain

continued


Earning Your Way

• Ability to find work depends on your– job skills– experience– education– career choice– demand for workers in your chosen field

• Ability to stay employed and advance depends on your job performance

continued


Earning Your Way

• Your earning power and job performance determine your personal standard of living

• A higher standard of living means a higher quality of life for most people

• Your standard of living and income should rise as you advance on the job


Earnings and the Economy

• Earning activities of consumers contribute to a country’s wealth

• The national standard of living is the level of prosperity in the country

continued



• The U.S. has one of the highest standards of living in the world

continued



• Measures of a nation’s prosperity– GDP per capita—the national GDP

divided by the population of a country

– Labor productivity


GDP Per Capita

• High or rising GDP per capita means– incomes are high or

rising– more goods and

services are available to each person

– people are consuming more

– standards of living are high or rising continued


GDP Per Capita

• Low or falling GDP per capita means– incomes are low or falling– fewer goods and services are

available to each person– people are consuming less– standards of living are low or falling

continued


GDP Per Capita

• There are problems with using GDP per capita as a measure of national prosperity– It assumes everyone gets an equal

share of goods and services produced– It disregards unpaid work, such as

housework, child care, and volunteer work


Labor Productivity

• High labor productivity indicates a healthy economy

• Productive workers produce more and can increase their earnings

continued


Labor Productivity

• To raise labor productivity, businesses and governments invest in– capital, such as factories and machinery– research and technology– transportation, communication, and

energy – education and training of the workforce

continued


Labor Productivity

• By raising the productivity of its workforce, a nation can raise its GDP and create wealth

• State of the economy determines job opportunities and earnings of workers


Spending and the Economy

• Consumers in a market economy make their own spending choices

continued



• Spending decisions of consumers create demand for goods and services they buy

• As a group, consumers determine the success or failure of specific goods, services, and businesses

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• Optimistic consumers tend to spend and borrow more, which creates– greater demand for goods and services– growth of businesses to meet increased

demand– more jobs– a sense of prosperity

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• Pessimistic consumers tend to spend and borrow less, which – lowers demand for goods and

services– lowers sales and slows business

growth– makes jobs harder to find– can lead to a recession


Saving Your Money

• Savings is anything that improves a person’s financial position

continued


Saving Your Money

• Savings include– cash– investments – home improvements – cash value of insurance policies – durable goods


Saving and the Economy

• Savings are put into financial institutions

• Financial institutions loan money to businesses and other consumers

• Loans pay for business growth, building construction, home purchases, and more


Borrowing to Spend

• Consumer credit lets you buy now and pay later

• Credit helps consumers pay for major and unexpected purchases

• Credit is costly; use of credit reduces future income


Borrowing and the Economy

• Borrowing increases money in circulation and demand for goods and services

continued


Borrowing and the Economy

• Borrowing can– cause prices to rise, resulting in

inflation – decrease future demand– threaten long-term economic

prosperity


In Your Opinion

• Does using credit do more harm than good to the economy? to individuals?


Insuring Against Financial Risks

• Insurance is a risk-management tool• Policyholders join others in

insurance pools and make payments to insurance companies

• Insurance companies invest payments in business enterprises

• Payments and their earnings pay the bills of policyholders who suffer losses


Insurance and the Economy

• Insurance contributes to overall economic stability by– spreading financial risks – stabilizing incomes of people who

suffer serious financial losses

• Insurance company investments contribute to growth


Investing for the Future

• An investment is an asset that increases wealth over time

• Investments also carry risk of loss

continued


Investing for the Future

• Types of investments include– securities (stocks, bonds, mutual

funds)– real estate– business ownership– certain insurance policies– valuable items


Investment and the Economy

• Investments pay for – business growth and activity– research and development of new

technology – marketing of new products and

services

• Benefits of investments ripple through the economy


Paying Taxes for Government Services

• Tax revenues pay for goods and services that government provides

• Voters indirectly decide the level of taxes and what they want to “buy” from government

• Types of taxes include income tax, sales tax, property tax


Taxes, Government Spending, and the Economy

• Positives of government spending– It creates

demand for goods and services

– It stimulates the economy

continued


Taxes, Government Spending, and the Economy

• Negatives of government spending:– It can drive up prices and cause

inflation– It can drive up the national debt

(deficit spending)


Economic Problems of Consumers in a Market

Economy• A confusing variety of products• Some questionable selling

methods• Conflict of interest between

consumers and sellers


Confusing Variety of Products

• The marketplace contains many sellers

• There are many new products and services created each day

• Consumers have many options and choices to make


Questionable Selling Methods

• High-pressure selling

• False advertising

• Contests• “Free” offers


Conflict of Interest

• Sellers want to charge the highest price they can get

• Consumers want the best quality at the lowest price

• Forces of supply and demand balance the needs of sellers and consumers


Consumer Mistakes Leading to Problems

• Lack of planning• Failure to use information• Impulse buying and overspending• Poor communication


Lack of Planning

• When consumers fail to plan, it can be– difficult to pay bills– hard to save for big expenses and

future needs– difficult to use credit wisely– easy to buy things that do not fulfill

your needs and goals


Failure to Use Information

• Consumers sometimes fail to investigate, ask questions, and know exactly what they are buying

continued


Failure to Use Information

• Failure to use information can be costly, disappointing, and even dangerous

• Information sources include salespeople, the Internet, and consumer magazines


Impulse Buying and Overspending

• Consumers sometimes buy without thinking about needs, goals, and consequences

• Impulse buying can result in overspending and thoughtless spending, especially among credit card users


Poor Communication

• Includes the failure to complain when necessary

• Can be costly


Central Ideas of the Chapter

• The economic decisions of consumers impact the overall economy.

• Smart consumers avoid the pitfalls that a market economy can create.


Glossary of Key Terms

• asset. An item of value that a person owns, such as cash, stocks, bonds, real estate, and personal possessions.

• durable goods. Products that have lasting value, such as furniture, appliances, and cars.

• GDP per capita. The market value of final goods and services produced per person.

• income tax. A tax on the earnings of individuals and corporations.

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• investment. An asset bought to increase wealth over time, but that carries the risk of loss.

• labor productivity. The value of the goods and services a worker creates in a given time.

• property tax. Tax paid on real estate owned by individuals and corporations.

• prosperity. A time period of growth and financial well-being.

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• sales tax. Tax added to the price of goods and services you buy.

• standard of living. The overall level of comfort of a person, household, or population as measured by the amount of goods and services consumed

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© goodheart-willcox co., inc.. 3 consumers in the economy: an overview

Documents

job slide

overview slide

volunteer work slide

consumer economic activities

national standard of

rising gdp

higher standard of living

market economy