Warm UpTurn to page 25 in your textbook• Read “Consumer Action”• What can Yolanda do to help her

business be more profitable?• How will she know if her price is

too high or too low?

Making Decisions in a Market Economy

• Market Economy – customers and businesses operate without much government involvement

• Both buyers and sellers gain what they want– Consumers are free to buy– Producers are free to sell

i.e.

You buy a sweater for $60 because you value it more than the $60 you spent on it and the store sold it at $60 because it could make a profit at that price

The Store

• When customers buy items, stores gain information about customers’ buying habits

The Manufacturer

• Your customer decision to buy something helps manufacturers decide what to make and what the store would offer for sale

Prices

Setting prices so that people buy!There are 3 choices1. Lower the price2. Convince customers to pay the higher price3. Stop offering the product

Businesses will make the choice they think will lead to the greatest profit!

The Profit Motive

• Most important reason to run a business in a market economy is to make a profit

• Companies that do not make a profit will go out of business

• You can increase profits by– Reducing costs (less expensive labor/supplies)– Changing the price (increase or decrease)– Increase quantity of products sold (ads)

Consumer Economics

• A Consumer is anyone who buys a product• Consumer economics is the study of the role

consumers play in an economic system• Important: we use things that we ourselves

don’t buy (our parents tv’s, etc…)• These are acts of consumption

Consumers in Charge

• Adam Smith – consumers are in charge• Consumer choices determine what goods and

services are produced• Competition is the contest among sellers to win

customers• Several companies offering similar products• Competition is the heart of capitalism• Competition forces businesses to serve

consumers

Elasticity of Demand

Let’s Think

• Can you think of a business that is no longer in business?

• What happened?

Efficiency and Profits

• Profitable companies do 3 things right1. Sell products consumers want to buy2. Sell products at prices consumers are willing to

pay3. Take in more money from sales than the

company spends to produce the product

Questions