Economics and Personal Finance/Consumer Skills

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Incentives[edit | edit source]

Positive incentive
  • Reward or other enticement that encourages a behavior
Negative incentive
  • Penalty that discourages a behavior

What are incentives?[edit | edit source]

  • For consumers?
    • Lower price
  • For producers?
    • Profit
  • For workers?
    • Pay and benefits
  • For savers?
    • Interest earned
  • For investors?
    • Capital gain

Consumer Sovereignty[edit | edit source]

Consumers rule! Businesses produce goods/services that consumers are willing and able to buy. Consumers tell businesses what they want through their "dollar votes" (what they buy).

Cost vs. Price vs. Revenue vs. Profit[edit | edit source]

  • Cost
    • Producers pay; money spent on the labor, raw materials, transportation, etc. in producing a good or service.
  • Price
    • Consumers pay price; money paid for a good/service.
  • Revenue
    • Income generated by the sale of goods and services (P • Q) [Price x Quantity]
  • Profit
    • Total revenue - Total cost/expenses [revenue - expenses = profit/loss]


  • profits DECREASES
  • price of good/service INCREASES

When costs DECREASE

  • profits INCREASES
  • price of good/service DECREASES

The Pricing System[edit | edit source]


Willingness and ability to produce/sell specific quantities of a good/service at different prices in a specific period of time.

Law of Supply

As the price of a product rises, producers are willing to supply more.

What causes a change in supply?

  • Changes in the cost of resources (lower costs = more supply)
  • Climatic conditions (better weather = more supply)
  • Technology (more of it, more supply)
  • Lower taxes (lower costs = more supply)

Willingness and ability to buy specific quantities of a good/service at different prices in a specific time period.

Law of Demand

People will buy more of a good/service at lower prices,a nd less at higher prices.

What causes a change in demand?

  • Change in consumer incomes
  • Change in consumer preferences
  • Weather, advertising

Substitute goods: Butter and margarine (can separate one another)
Compliment goods: Hot dogs and hot dog buns (can compliment/help out each other)

The Supply Curve and The Demand Curve[edit | edit source]

The Supply Curve goes upward towards the right... the higher the price, the higher the quantity supplied.

The Demand Curve goes downward towards the right... the higher the price, the lower the demand.

The price of an item will go up if the supply decreases and the demand increases.

The price of an item will go down if the supply increases and the demand decreases.

The Supply (S) and Demand (D) Curve

How do supply and demand affect the value of workers?[edit | edit source]

Productive workers lower the cost of production, so employers want to hire productive workers! These productive workers have more knowledge and more skills.

How does supply and demand of a good service affect the supply and demand of workers and wages?
  • If the demand for a good/service goes up, so does the demand for workers.
  • An increase in the supply of workers tends to decrease wages.
How to make Consumer Decisions
Marginal Benefits

The change in total satisfaction resulting from an action

Marginal Costs

The change in total cost resulting from an action. If the marginal cost is greater than the marginal benefit, don't do it.

P.A.C.E.D decision model[edit | edit source]

  1. Determine the Problem.
  2. List the Alternatives.
  3. Establish Criteria.
  4. Evaluate each alternative according to the criteria.
  5. Decide.

Conspicuous Consumption[edit | edit source]

  • Buying goods/services for the purpose of impressing others in hopes of improving one's social status.
  • This leads to spending beyond one's means.

Contracts[edit | edit source]

A binding legal agreement that is enforceable by law. Ex:

  • Property rentals
  • Cell phone agreements
  • Phone apps
  • Payday loans
  • Title loans

There are legal consequences for failure to comply.

Comparison shopping: Look at the same item in several stores

  • Value
  • Time
  • Convenience
  • Price
  • Payment options (layaway)
  • Warranty: A written guarantee promising to repair/replace an item within a certain period of time.
  • Costs vs. Benefits