Role of consumers:
- consumers: all individ.s in ec. that consume goods and services to satisfy needs and wants - consumer sovereignty: refers to the fact that patterns of consumers spending determine patterns of production. Through spending dec. consumers express their preferences.
Factors influencing individual consumer choice:
Income: disposable income – after tax (main determinant on consumer spending)
More income, more demand for good and services
But APS will rise as income rises.
Price: spending decisions according to relative prices of g-and-s
Demand inverse relationship with price
Price of Substitutes: substitutes: Those used in place of other products eg. Generic brands As the price of one rises, a consumer may switch to a substitute as it is cheaper Price of Complements: complements: those used in conjunction with other g-and-s. car
Car and petrol
If one good rises, demand falls for that good and its complement
Complement determine demand vica versa
Preferences and Tastes: each individual is diff., have diff. tastes. Eg. Like blue over pink
Seasonal and fashion. Scarves and hats in winter.
Advertising: it’s the dissemination of info or images about a product or service.
Designed to influence by persuasion or image
Informative: gives info of product, price, quality and features
Persuasive: builds brand loyalty, by presenting an image or non-physical
attribute of prod.
Sources of Income:
Variety of sources
mainly as a return from factors of prod.
And also as social welfare.
Returns to factors of prod:
- Wages from labour: main source -
In market ec. Time spent or level of skill contributed to production determines level of pay – more time spent, higher the salary Inclu: non-wage income eg. Super, workers comp. Rent: from land
Interest: from capital (investment is buying more capital)
Profit: from entrepreneurial skills
Social Welfare *gov. welfare: as a means in a market ec. to provide more equal distribution of income and so everyone can afford basic needs - unemployment benefits dole
- disability allowance
- family allowance
Role of Businesses in the Economy:
Businesses: - produce g-and-s
- employ resources and pay costs of prod.
- pay tax
- invest in productive capacity (ie spend money on factors of production)
Firm – an org. that uses entrepreneurial skills to organise and combine factors of prod. To produce a g-and-s Industry – consists of firms making a similar range of consumables (items), competing with each other.
Firms Production Decisions:
- What to produce? – consumer demand
- preferences and expertise of entrepreneurs - opportunities in market place
- availability of capital
- How much to produce? – achieve the technical optimum (look at economies of scale); - level of production that will maximise revenue and minimise costs, thus max. profit for firms.
- How to produce? – use least cost combo. of resources and tech available. Business as a source of ec. growth and increased productive capacity
Goals of the Firm:
- Goals reflect preferences of the owners and managers, level of comp in industry, legal structure and ec. environment. Maximise Profits: make the biggest poss. Profit (total revenue – total cost)
- through creating economies of scale
Meet Shareholder Expectations: serve interest of shareholder – profit (divendends), ethical behav . and corporate image
-through listening to shareholder expressions and votes
Increasing Market share: more share = more profit in long run
Improved ability to compete (brand loyalty)
-through advertising and promotions
Maximise Growth: ensure firm survives in the...
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