"Consumer Economics" Chapter 2 - Vocab and Notes

The Law of Diminishing Returns

A principle holding that, after a given time, increasing use of labor and capital combined with a fixed amount of land will produce progressively smaller yields

Simple Living

Consciously reducing ones possessions toward a minimalistic lifestyle; rejecting the “more is better” mentality

The four principals of consumption

• Harmonious consumption

• Diminishing utility

• Variety

• Satiety

Harmonious Consumption

A principle of consumption referring to the tendency to purchase combinations of things

Diminishing Utility

The principle holding that as more of a given product is consumed, per-unit satisfaction of the product declines

Variety

A principle of consumption referring to the desire to accumulate different kinds of goods

Satiety

A principle of consumption concerning the desire to obtain an unlimited amount of goods and services

What four categories are made from the criteria of rivalry and excludability?

Goods and services that are:

• Public

• Private

• Club

• Common

Public Goods

Goods for everyone that are governmentally controlled and regulated

Private Goods

Goods for personal necessity/use

Club Goods

Goods that are artificially scarce and require fees (satellite TV and private clubs/parks)

Common Goods

Goods that are open to everyone

Maslow’s Hierarchy of Needs

Physiological (Base) —> Safety —> Belongingness and Love —> Esteem —> Intellectual —> Aesthetic —> Self-Actualization (Top)

Biological Consumer needs

1. Oxygen

2. Water

3. Food

4. Shelter

5. Health

6. Tactile sensations

7. Sound

8. Sight

9. Play

Psychological Consumer motives/drives

1. Organic (internal) motives

2. Emergency motives

3. Objective motives

Social Consumer wants

• Desire for achievement

• Desire for security

• Conformity

• Sociability

• Appreciation of leisure

• Admiration for youthfulness

Assimilation

The process by which an immigrant group gradually adopts the characteristics of the new culture

Reference Group

A group that influences an individual’s attitudes or behavior

Group Characteristics

1. Language/communication through speech, writing, images, etc

2. Religion

3. Government/social control

4. Appreciating beauty (visual arts)

5. Social activities

6. Stimulants and sedatives (drugs)

Forces that influence consumer wants

• Culture

• Environment

• Psychology

• Personality

• Society

• Biology/physiology

• Climate

• Natural resources

• Socioeconomic status

• Income

• Occupation

• Politics

• Taxes

• Tariffs/Quotas

Real Income

The amount of goods and services that one’s income will purchase

Psychic Income

The satisfaction gained in consuming the goods and services purchased with one’s income; income in a form other than monetary (power, prestige, job satisfaction, etc)

Fiscal Policy

A tool of government to achieve economic goals through its power to tax and spend

Monetary Policy

The government’s attempt to achieve economic goals by regulating the supply of money and credit through the Federal Reserve System

Progressive Tax

A tax that requires a larger fraction of income as income increases

Regressive Tax

A tax requiring a small fraction of income as that income increases (sales tax)

Proportional Tax

A tax that requires the same fraction of income from all income levels

Tax Expenditures (Tax Loopholes)

Deductions and expenditures that reduce actual taxes due

Marginal Tax Bracket

The percentage of taxes paid on the top dollar’s worth of taxable income

Tariffs

A tax assessed on imported goods

Quota

A limitation placed on the quantity of a product permitted to be imported

What are some of the detriments of tariffs?

• Inflated prices

• Reduced competition

• Other countries begin to set up similar barriers

The North American Free Trade Agreement (NAFTA, 1994)

Eliminated tariffs among Canada, Mexico, and the U.S. on most products; included comprehensive dispute resolution process, accessibility of government procurement contracts, and simplified business travel procedures

United States-Mexico-Canada Agreement (USMCA, 2020)

Donald Trump’s rebrand of NAFTA in an effort to bring back manufacturing jobs to the U.S. and protecting intellectual property, and lowering prescription drug prices

What changes did the USMCA bring?

• Updates to auto manufacturing

• Opening the dairy market in CA to U.S farmers

• Regulations for MEX trucks crossing the border

• Protections for patents and trademarks

• Reduction in competition for U.S. drug companies selling in CA

• Restrictions on companies filing Chapter 11 bankruptcy

Demand

The amount of a product or service that buyers will purchase at a specific price

Utility

The power of an economic product or service to satisfy a human want

Demand Schedule

A series of amounts of a product or service that buyers will purchase at a series of prices at a given time in a given market

Inelasticity of Demand

Change in price results in small changes in quantity demanded

Elasticity of Demand

A change in price results in large changes in quantity demanded

Price Elasticity of Demand (PED) =

% change in quantity demand (Qd) / % change in price (p)

Fair Credit Billing Act (FCBA, 1975)

Governs access to consumer credit report records and promotes accuracy, fairness, and the privacy of personal information