GoodheartWillcox Co Inc 3 Consumers in the Economy

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3 Consumers in the Economy: An Overview © Goodheart-Willcox Co. , Inc.

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. © Goodheart-Willcox Co. , Inc. 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. © Goodheart-Willcox Co. , Inc.

Economic Activities of Consumers • Economic activities of consumers include – earning – spending – saving – borrowing © Goodheart-Willcox Co. , Inc. – 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 © Goodheart-Willcox Co. , Inc. 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 © Goodheart-Willcox Co. , Inc. 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 © Goodheart-Willcox Co. , Inc.

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 © Goodheart-Willcox Co. , Inc. continued

Earnings and the Economy • The U. S. has one of the highest standards of living in the world © Goodheart-Willcox Co. , Inc. continued

Earnings and the Economy • Measures of a nation’s prosperity – GDP per capita—the national GDP divided by the population of a country – Labor productivity © Goodheart-Willcox Co. , Inc.

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 © Goodheart-Willcox Co. , Inc. 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 © Goodheart-Willcox Co. , Inc. 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 © Goodheart-Willcox Co. , Inc.

Labor Productivity • High labor productivity indicates a healthy economy • Productive workers produce more and can increase their earnings © Goodheart-Willcox Co. , Inc. 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 © Goodheart-Willcox Co. , Inc. 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 © Goodheart-Willcox Co. , Inc.

Spending and the Economy • Consumers in a market economy make their own spending choices © Goodheart-Willcox Co. , Inc. continued

Spending and the Economy • 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 © Goodheart-Willcox Co. , Inc. continued

Spending and the Economy • 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 © Goodheart-Willcox Co. , Inc. continued

Spending and the Economy • 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 © Goodheart-Willcox Co. , Inc.

Saving Your Money • Savings is anything that improves a person’s financial position © Goodheart-Willcox Co. , Inc. continued

Saving Your Money • Savings include – cash – investments – home improvements – cash value of insurance policies – durable goods © Goodheart-Willcox Co. , Inc.

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 © Goodheart-Willcox Co. , Inc.

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 © Goodheart-Willcox Co. , Inc.

Borrowing and the Economy • Borrowing increases money in circulation and demand for goods and services © Goodheart-Willcox Co. , Inc. continued

Borrowing and the Economy • Borrowing can – cause prices to rise, resulting in inflation – decrease future demand – threaten long-term economic prosperity © Goodheart-Willcox Co. , Inc.

In Your Opinion • Does using credit do more harm than good to the economy? to individuals? © Goodheart-Willcox Co. , Inc.

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 © Goodheart-Willcox Co. , Inc.

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 © Goodheart-Willcox Co. , Inc.

Investing for the Future • An investment is an asset that increases wealth over time • Investments also carry risk of loss © Goodheart-Willcox Co. , Inc. continued

Investing for the Future • Types of investments include – securities (stocks, bonds, mutual funds) – real estate – business ownership – certain insurance policies – valuable items © Goodheart-Willcox Co. , Inc.

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 © Goodheart-Willcox Co. , Inc.

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 © Goodheart-Willcox Co. , Inc.

Taxes, Government Spending, and the Economy • Positives of government spending – It creates demand for goods and services – It stimulates the economy © Goodheart-Willcox Co. , Inc. 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) © Goodheart-Willcox Co. , Inc.

Economic Problems of Consumers in a Market Economy • A confusing variety of products • Some questionable selling methods • Conflict of interest between consumers and sellers © Goodheart-Willcox Co. , Inc.

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 © Goodheart-Willcox Co. , Inc.

Questionable Selling Methods • High-pressure selling • False advertising • Contests • “Free” offers © Goodheart-Willcox Co. , Inc.

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 © Goodheart-Willcox Co. , Inc.

Consumer Mistakes Leading to Problems • Lack of planning • Failure to use information • Impulse buying and overspending • Poor communication © Goodheart-Willcox Co. , Inc.

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 © Goodheart-Willcox Co. , Inc.

Failure to Use Information • Consumers sometimes fail to investigate, ask questions, and know exactly what they are buying © Goodheart-Willcox Co. , Inc. 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 © Goodheart-Willcox Co. , Inc.

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 © Goodheart-Willcox Co. , Inc.

Poor Communication • Includes the failure to complain when necessary • Can be costly © Goodheart-Willcox Co. , Inc.

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. © Goodheart-Willcox Co. , Inc.

Glossary of Key Terms Back • 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 person. • income tax. A tax on the earnings of individuals and corporations. © Goodheart-Willcox Co. , Inc.

Glossary of Key Terms Back • 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. © Goodheart-Willcox Co. , Inc.

Glossary of Key Terms • 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 © Goodheart-Willcox Co. , Inc. Back