CSEC_Economics_Unit_1.5.pdf

Consumers, producers and governments have different motives for making economic decisions: consumers seek to purchase goods that give them value for money; produces aim to make a profit; and governments want to create stability in the economy with steady growth of incomes and spending.

Transcript

1. CSEC Economics CSEC Economics May/June 2019
2. Making Economic Decisions Unit 1: Nature of Economics Unit 1: Nature of Economics
3. Learning Objectives Learning Objectives    Explain what an economic decision is; List the main influences on individuals in making economic decisions; List the main influences on firms in making economic decisions.
4. Making Economic Decisions Making Economic Decisions
5. The economy is dynamic. Individuals or households are constantly choosing on what goods and services to spend their income.
6. They are choosing whether to save or to spend. They are even considering where to work. Firms are constantly choosing what goods to produce in what quantities, and at what prices to sell those goods. These activities all involve economic decisions where an individual is faced with options and chooses one course of action.
7. Factors influencing the economic decisions of households Factors influencing the economic decisions of households (consumers) (consumers)
8. Households or individuals in the economy are the consumers of goods and services and the owners of the factors of production. These individuals make economic decisions, such as what goods or services to buy, or where to work. Individuals are not isolated - each interacts with others and with the environment. The following factors influence the economic decisions of households.
9.   Personal choice. Personal choice is a desire for a product that is acted upon. People acquire goods and services that they want or need. Mr Brown might choose to buy a set of pliers but Mrs Brown might choose to buy a matching brooch and scarf. Size of income. Generally, growing incomes allow for the purchase of more goods and services, and, conversely, declining incomes mean that fewer purchases are possible. A higher income also allows the individual to buy better quality goods and services.
10. Bandwagon effect. Some people might buy an item because everyone else is buying it. This is the case with a fad. Nowadays, many residents in the Caribbean want to own a cell phone or an iPod. It is a form of peer pressure where consumers of all ages try to keep up with the purchases of their peers. You might not feel as if you are part of the crowd unless you, too, own a cell phone or an iPod. It is also called 'the keeping up with the Jones effect'.
11.   Type of work. This could influence the type of clothes the individual wears or the type of car he owns. It could also affect the decision about where to live. Some people prefer to live near to their workplace. Others prefer to be at a distance. Some have no choice in the matter. Level of education. This influences the type of items we like to own, such as books or a laptop computer. Students have different needs from those of other individuals. Your education can also affect your interests. A geography teacher might subscribe to the National Geographic magazine, while a beauty salon owner might buy Vogue magazine.Rate
12.   Rate of interest. If the rate of interest offered by banks on saving accounts is high, individuals will tend to save more. If the rate of interest is low, people will save less and spend more. They will even borrow to purchase consumer durables, such as cars, computers and television sets. Climate and weather conditions. The weather will affect economic decisions of households, as it has a direct influence on comfort and safety. Hot Caribbean weather means that more and more individuals are purchasing air conditioning units for their homes. The threat of hurricanes makes individuals more cautious about purchasing beach front properties. In September 2004, Hurricane Ivan did a great deal of damage in Grenada and Grand Cayman; some individuals lost their livelihood. In such a situations people do not have the means or the desire to purchase goods and services, but are only concerned with obtaining the necessities of life.
13. Insert Case Study Insert Case Study • 1. 2. 3. 4. Questions How do Clive’s and Pearline’s incomes affect their Spending? Who is able to save more and why? How might Clive’s or Pearline’s Tastes change? What Would be the effect on their spending? If Clive’s rate of income tax increased, what might be the impact on his spending?
14. • • • • The important economic decisions that individuals make are; what type of job to do whether to save or spend how to spend their income
15. • • The following factors influence the economic decisions: Income: when income and/or wealth increases, individuals are able to spend more. They can also save more. Borrowing: high-income earners can afford to borrow more than low income earners. They are also likely to save a higher proportion of their income than low-income earners. Where incomes are very low, individuals might have to borrow money to buy essential.
16. • Wealth: in making individual economic decisions, people will consider the prices of various goods available to them. Richer people will be able to buy more goods and higher-priced goods. Poorer people with often have to buy fewer goods and at lower prices.
17. • • Changes in the rate of income tax: when taxes rise, individual’s disposable income falls, and they may have to cut back their spending as a result. Tastes: taste influence economy decisions. When tastes change in favor of goods and services, more is spent on these - fashionable clothes, for example.
18. Did you Know Did you Know • • • Consumers, producers and government have different motives for making economic decisions: consumer seek to purchase good that gives them value for money produces aim to make a profit governments want to create stability in the economy with steady growth of incomes and spending
19. Factors influencing the economic decisions of firms Factors influencing the economic decisions of firms (producers) (producers)
20.  As do individuals, firms also make economic decisions, such as what to produce and how to produce. Firms are affected by factors internal to the firm, and the external environment. Some influences on firms in making economic decisions are: Costs of production. Increasing costs can reduce a firm's output, unless the prospects for profits are high. In such a case, the firm will produce even costs are increasing.
21. Profits. Supernormal profit is the excess of total revenue over total costs. Once there is a potential for profits, firms will invest. In economics, we assume that producers are rational and that they are attracted by profits. Resource base. The resource base is the quality and type of resources available to a firm. The availability of resources will affect the firm's decision to produce a particular good. If resources are not available, then the firm will not be able to produce.
22.   Industrial relations. The relationship between the management of a firm and the workers (usually represented by a trade union) is called 'industrial relations'. Cordial industrial relations will make the firm willing to employ more labour. Poor industrial relations will make the firm more inclined to use capital instead of labour. Changing demand for the product. If a firm is faced with falling demand for the good it produces, the firm will make a decision to cut back on production. If there is increasing demand, then the firm will produce more, provided that it is able to obtain all the factors of production to produce the given goods.
23. • • • Producers need to decide what goods to produce and in what quantities. The decisions they make are influenced in turn by the buying, spending and saving decisions made by individuals. The key influence on produces decisions are The resources available to them The budget available to them Technical know-how
24. The resources available to them The resources available to them • A business needs suitable resources. In the Caribbean, fishing is popular because they're there are natural resources (fish) available and the only equipment required is a boat, a reel and line. Tourism is also possible where there are resources in the form of sandy beaches and a favorable climate.
25. The budget available to them The budget available to them • To catch fish and to operate tourist facilities, producers need to have a budget (money) available. A fishing boat is an expensive purchase, and a hotel or restaurant is a large investment. To set up, taxi business, for example, an enterprising person must be in position to borrow the funds to buy a car and keep it running.
26. Technical know-how Technical know-how • • • • • Having the right technical know-how is also needed for setting up production. A fisherman needs to know how to create an outboard motor for a fishing boat. To set up a small factory outlet requires technical expertise in production skills. So in deciding whether to set up as a producer it is important to answer certain questions: Do I have access to the right resources? Is my budget sufficient for what I want to do? Do I have, or can I acquire, the necessary technical know-how?
27. Note: Note: • The Caribbean is one of the best locations in the world for solar power. Many new companies are set up to produce solar-powered goods such as home energy systems. New companies need the capital and expertise to serve the growing industry.
28. Government influences on economic decisions Government influences on economic decisions
29.   The government influences economic decisions in a number of ways. These include: Laws and grants to induce firms to locate in a particular region of the country. Taxes on the production and consumption of goods that impose a cost on society; for example, cigarettes and gasoline. Taxes increase the price the consumer has to pay for the good, and so they tend to curb consumption and production of such goods. In Trinidad and Tobago, there are excise duties on cigarettes, alcohol and gasoline. Setting up of industrial zones to encourage and facilitate the activities of firms.
30.   Provision of infrastructure, such as roads, bridges and ports. In Trinidad and Tobago, the opening up of the port at Point Lisas encouraged many firms to locate there. These firms located there to take advantage of the port facilities for importing raw materials, and for easy transportation of finished bulky goods. General laws to direct firms' activities; for example, the setting of the minimum wage of TT$9 per hour in March 2005 by the government of Trinidad and Tobago. This will affect the numbers employed by firms. In this country, the government also wants to close down casinos to discourage gaming and gambling. The government enforces its laws to regulate firms.
31. Laws concerning the employment of disabled persons. Section 8 of the Equal Opportunity Act, 2000, Trinidad and Tobago, states that an employer shall not discriminate against any person when offering employment, However, the Act further states that this will not apply if the person's disability will prevent him from carrying out his job, or if his disability will result in risk to others or to himself; or if, to carry out the job, the person requires facilities that other workers do not need that will cause the employer hardship. Employers are therefore governed by this law.
32. Summary Summary
33.       The Main Influence on individual economic decision-making are the income available to a person and the prices of goods. Other factors includes: personal choice: bandwagon effect (peer pressure) type of work; level of education; rate of interest; climate and weather conditions.
34.      The main influences on economic decisions made by producers are resources available, budget and technical know-how. Other factors are. cost of production: profits resource base industrial relations: changing demand. The government and other factors in the economy influence the of the households and firms
35. Summery Questions Summery Questions 1. 2. 3. Using examples explain 4 factors that influences the economic decisions ofhouseholds. What are the main influences on a business that processes food in making economic decisions? How can government influence the economic decisions of firms?