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Theme 2: Consumption and
Consumerism (Economic Systems +
Supply and Demand)
Economic Systems
• Capitalism v. Communism
• Capitalism: an economic system in which the
citizenry is free to choose how to best utilize
(produce, distribute and consume) their resources.
o “Laissez Faire”: hands free of the government
o Limited government regulation or control of production and consumption.
o Pure Capitalism: NO government interference
• Give examples of capitalist behavior.
• Give examples of government regulation or control
of the markets
• Has a largescale “pure” capitalist system ever
existed?
Economic Systems
Continued…Communism
• Communism: a social and economic system by which
the citizenry is structured in a classless society through
which “common ownership” of all property and
choices determines the best means to utilize (produce,
manufacture, and distribute) all resources.
o Purest form of a “Command Economy
o Has a pure Communist system ever existed on a large scale?
• Socialism: characterized by a large degree of
government control of how to best utilize
(manufacture, produce, and distribute) resources.
o Often characterized by high taxes with universal access to specific public
services to boot.
o Historically, has often lent itself to authoritarian forms of government.
Wait a second…thats…that’s Arizona
Mixed Economy
• Mixed economy: an economy which contains
elements of more than one type of economic
system.
o Americans utilize both socialist and capitalist principles in our economic
approach.
o What question does that create if we have a mixed economy?
o What are the strengths of capitalism and socialism? Weaknesses?
Supply and Demand
• In capitalism, what are the factors (forces) that help shape
what is produced and consumed?
Supply and Demand determines trade:
Buyers purchase goods and services with money
Sellers get money for selling goods and services
The price is relative to the amount buyers are willing to trade
and the amount sellers are willing to trade for both groups
to be happy.
- Price is determined between an equilibrium between those
that demand and those that sell.
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1.
2.
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• What is demand?
• A Ferrari? A trip around the world? Do you demand these?
Demand
• Demand: desire, willingness, and ability to buy a
good or service at various prices.
• Three variables required for demand to exist:
1) Consumer must want to buy a product
2) Be willing to buy the product
3) Have the resources available to purchase the
product
Demand schedule
• Table that lists the various prices and quantities of a
product or service that someone is willing to buy over
a range of possible prices. (Could/should follow a
logical progression)
Price (per bushel)
Quantity Demanded for
Wheat (bushels per month)
90
45
85
65
80
85
75
105
70
125
Demand Curve
Demand curve
• Graph that shows the amount of a product that would
be bought at all possible prices in the market.
• Price (vertical) and Quantity (Horizontal)
• Law of demand: quantity demanded and price move in
opposite directions (people will buy less the more an item
costs and vice versa).
• Market demand:
o the total demand of all consumers within a specific
market.
o aggregate of all consumers who have demand for a
specific product
Supply
• Supply: refers to the maximum quantities of a good
or service producers are willing to sell at all possible
market prices.
• Supply Schedule: Table that lists the various prices
and quantities of a product or service that
someone is willing to produce over a range of
possible prices.
Supply Schedule
Price (per bushel)
Quantity supplied
(bushels/month)
90
115
85
100
80
85
75
70
70
55
What is the Law of Supply?
Law of Supply
• Law of Supply: As prices for a good increase, so will
the quantity the producers are willing to supply. If
prices fall, the quantity producers are willing to
supply will decrease.
Supply Curve
Finding the Equilibrium
Price
Price
Quantity
Demanded
Quantity
Supplied
State of the Market
Change in Price
90
45
115
Surplus=70 units
Decrease Price
85
65
100
Surplus=35 units
Decrease Price
80
85
85
EP
Stay
75
105
105
Shortage=35 units
Increase Price
70
125
55
Shortage=70 units
Increase Price
Surplus: the quantity supplied is greater than the quantity demanded (price is too
high).
Shortage: the amount demanded is greater than the quantity is supplied (price is too
low).
Equilibrium Price: the price when there is neither a surplus nor a shortage.
Supply and demand
Is Consumerism bad?
• When you hear the word “consumption” or
“consumerism”, do you believe that it takes on a
negative connotation? Why or why not?
• http://www.economist.com/news/international/216
98051-frank-trentmann-discusses-his-historyconsumerism-empire-things-and-reveals-guilty
• Minute: 6:40
Consumption Factors
• Four factors which influence us to make a purchase:
o Economic Factors (Type of economic system, Supply and Demand,
Competition)
o Political Factors (Regulation of products, tax credits)
o Social Factors (Praise and ridicule; how you will be judged)
o Personal Factors
Personal Factors
• Personal income
o Avoid living outside of your income for MOST reasons
• Needs
o How does your consumption affect your health?
• Wants
o Weigh your trade-offs and consider the opportunity costs
o Set your short-term to long-term goals
o Consider how much stress income creates for you before you spend
• Morality and Ethics
o Is there a moral weight to a purchase?
o Consider the types of products and company traits you want to promote
o Consider the type of economy you want to promote (shared economy,
non-profit v. for-profit, national v. international companies)
Consumer Sovereignty
• Consumer Sovereignty: the assertion that consumer
preference determine the production of goods and
services.
o Collectively, consumer buying decisions direct the production of goods
and services.
o When consumers purchase, they are casting dollar “votes” for its
continued consumption.
• Important to remember the power of consumer
advocacy (actions taken by individuals or groups to
protect to promote and protect the interest of the
buying public)
o It is also important to remember that there are often less incentives for
consumer advocacy in comparison to the lobbying power of the
manufacturer.
Assignment
• One Week of Consumption Tracker
How to research
products?
• Phase 1: Before you shop
o Identify needs, gather information (how?), be aware of the marketplace
(brands, average prices)
• Phase 2: Weighing alternatives
o Comparison shopping
• Phase 3: Making a purchase
o Negotiate a price (car), decide how to pay (credit, cash, law-away, paypal)
o Know the real price (taxes, fees)
• Phase 4: After the purchase
o Know your rights
o Return policies
Consumer Responsibilities:
Fraud and Deception
• Bait and Switch: sales technique in which a seller
advertisers a product with the intention of
persuading consumers to buy a more expensive
product (illegal).
• Fake sale: advertised sale, but keeps items at
regular price.
• Low balling: a technique whereby a company
advertises a product or service at a low price to lure
in customers and then increase the price as the sale
continues once they are sold (surcharges).
Continued
• Pyramid scheme: multilevel marketing plan that
promises members commissions from their own sales
and those of other members they recruit.
o Usually a cash investment is required by the newest members.
• Ponzi scheme: a fraudulent investment operation in
which money collected from new investors is used
to pay off earlier investors.
o Seems to pay off early by paying some dividends to early investors (from
new investors) which brings in more investors.
o “Bernie” Madoff- ripped off customers between $18 and $65 billion, and
was sentenced to 150 years in prison.
Shop Smart
Comparison Shopping
Know prices
Compare unit prices (how many ounces or serving size)
Read Contracts
Keep warranties/receipts
Be loyal (give and ask advice to find the best)
Wait a day for most major purchases
You can’t just trust reviews online:
http://www.forbes.com/sites/suwcharmananderson/201
2/08/28/fake-reviews-amazons-rottencore/#2cd9c6a366d6
• Time purchases (seasonal, time of day, clearances)
• Avoid impulse buying
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