Microeconomics - L3 Consumers Flashcards
Who are the 3 key economic agents in any economy?
Consumers, Producers and the Government
What is the role of consumers?
Consumers offer their labour to producers in exchange for an income. They use this income to purchase goods and services.
What are the 3 assumptions economists make about consumers?
Consumers make informed decisions
Consumers act rationally
Consumers have an ordered set of preferences
What does ‘consumers make informed decisions’ mean?
Consumers have all the information they require to make the best possible decision when making a purchase or economic decision.
As a result, consumers can minimise their opportunity cost by considering the costs and benefits involved in all decisions.
What does ‘consumers act rationally’ mean?
Consumers act rationally when they spend their limited income, by spending it in ways that maximise their overall satisfaction through selecting the best mix of goods and services.
Rational behavior would include shopping around for the best deal and the lowest price.
What does ‘consumers have an ordered set of preferences’ mean?
Consumers are able to rank their preferences, making choices to maximise their utility (consider what is most useful/beneficial).
Most consumers would satisfy their basic needs by purchasing essential goods and services such as clothing and shelter first, and then turn to non-essential wants.
Consumers unconsciously rank their spending priorities and purchase the goods and services that result in the greatest benefit to them first.
What are the 4 economic factors that influence decisions made by consumers?
Utility maximisation
Budget constraints
Internal influences
External influences
What is utility maximisation?
Consumers will maximise their total utility by purchasing and consuming the most useful/beneficial combination of goods and services, in order to minimise opportunity cost.
What are budget constraints and how do they influence consumer decision making?
Budget constraints are limits on what consumers can afford.
What are the two types of internal influences on consumer decision making?
Briefly outline each type and include an example.
Ethics - moral principles that guide a person’s behaviour
Eg. A consumer may boycott a brand or product due to the company including palm oil as an ingredient which contributes to the destruction of orangutan habitats.
Habit - consumers regularly purchase certain types or brands of goods and services with little to no thought.
Eg. Stopping by the same coffee shop each day on the way to work to buy a coffee.
What are the three types of external influences on consumer decision making?
Briefly outline each type and include an example.
Culture - values, beliefs and attitudes that members of a society share.
Eg. Playing cricket at the beach over summer
Eg. Eating a pie at the footy
Marketing - activities aimed at attracting customers to a business’ products. Includes advertising, sponsorship and branding activities.
Eg. Maccas ‘I’m lovin it!’ slogan or Monopoly board game.
Government - using the taxation system and the government’s considerable spending power to influence consumer decisions through incentives and disincentives.
Eg. Incentive - Providing a subsidy for consumers who install solar.
Eg. Disincentive - Introducing a tax on electricity to discourage energy use by consumers that is generated by coal fired electricity stations. (Tax makes electricity bills more expensive).
