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Questions and Answers
What is the fundamental economic problem that scarcity refers to?
What is the term for the value of the next best alternative forgone when a choice is made?
What type of opportunity cost refers to the direct cost of a choice, such as the price of a product?
What is a direct result of the fundamental economic problem of scarcity?
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What is a characteristic of opportunity cost?
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What is an example of a trade-off resulting from scarcity?
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What is a consequence of scarcity?
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What is an example of an opportunity cost?
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Study Notes
Decision Making
- Consumer decision making is the process by which individuals make choices about what, how, and when to purchase goods and services.
- Factors influencing consumer decision making:
- Personal factors: age, income, occupation, lifestyle, and personality
- Psychological factors: motivation, perception, and learning
- Social factors: family, culture, and social status
- Economic factors: price, quality, and availability
- Decision making models:
- Rational choice model: consumers make decisions based on complete and perfect information
- Behavioral choice model: consumers make decisions based on biases, heuristics, and mental shortcuts
Scarcity
- Scarcity refers to the fundamental economic problem of unlimited wants and needs, but limited resources.
- Scarcity leads to:
- Trade-offs: consumers must choose between different options due to limited resources
- Opportunity cost: the value of the next best alternative forgone
- Budget constraint: consumers must allocate their limited resources to meet their needs and wants
- Types of scarcity:
- Absolute scarcity: a shortage of a particular resource
- Relative scarcity: a shortage of a resource relative to its demand
Opportunity Cost
- Opportunity cost is the value of the next best alternative forgone when a choice is made.
- Opportunity cost is a key concept in understanding consumer decision making and scarcity.
- Types of opportunity cost:
- Monetary opportunity cost: the direct cost of a choice, such as the price of a product
- Non-monetary opportunity cost: the indirect cost of a choice, such as time and effort
- Examples of opportunity cost:
- Choosing to spend $100 on a concert ticket means giving up the opportunity to spend that $100 on a new video game
- Choosing to spend 2 hours studying means giving up the opportunity to spend that time watching a movie
Decision Making
- Consumer decision making is a complex process involving personal, psychological, social, and economic factors.
- Personal factors influencing decision making include age, income, occupation, lifestyle, and personality.
- Psychological factors include motivation, perception, and learning.
- Social factors include family, culture, and social status.
- Economic factors include price, quality, and availability.
- Rational choice model: consumers make decisions based on complete and perfect information.
- Behavioral choice model: consumers make decisions based on biases, heuristics, and mental shortcuts.
Scarcity
- Scarcity is the fundamental economic problem of unlimited wants and needs, but limited resources.
- Scarcity leads to trade-offs, where consumers must choose between different options.
- Opportunity cost is the value of the next best alternative forgone.
- Budget constraint: consumers must allocate their limited resources to meet their needs and wants.
- Absolute scarcity: a shortage of a particular resource.
- Relative scarcity: a shortage of a resource relative to its demand.
Opportunity Cost
- Opportunity cost is the value of the next best alternative forgone when a choice is made.
- Opportunity cost is a key concept in understanding consumer decision making and scarcity.
- Monetary opportunity cost: the direct cost of a choice, such as the price of a product.
- Non-monetary opportunity cost: the indirect cost of a choice, such as time and effort.
- Examples of opportunity cost:
- Giving up a new video game to spend $100 on a concert ticket.
- Giving up watching a movie to spend 2 hours studying.
Consumer Choices
Scarcity
- Scarcity is the fundamental economic problem of limited resources to meet unlimited wants and needs.
- It is characterized by unlimited wants and needs, but limited resources (goods and services).
- Scarcity necessitates choice, as individuals must allocate resources to meet their needs.
- As a result, scarcity forces individuals to make choices about how to allocate resources.
- This leads to trade-offs and opportunity costs.
Opportunity Cost
- Opportunity cost is the value of the next best alternative that is given up when a choice is made.
- It is not limited to monetary costs, but also includes time, effort, and other resources.
- Opportunity cost is subjective and varies from person to person.
- Understanding opportunity cost is crucial in understanding consumer behavior and decision-making.
- Examples of opportunity cost include:
- Giving up the opportunity to spend $100 on a new video game to spend it on a concert ticket.
- Giving up the opportunity to spend 3 hours watching a movie to spend it studying for an exam.
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Description
Understand the process of consumer decision making, including personal, psychological, social, and economic factors that influence purchasing choices and decision making models.
