Consumer concepts is quite an important subject when dealing with the subject of economics because consumers can be emotionally motivated. This article is aimed at exploring some of the basic consumer concepts that are vital to everyone.
The five basic economic concepts every consumer need to know is about how society uses its limited resources to deal with its everyday needs or wants. So, the term economics need to be understood by everyone before anything.
This article is designed to give you the fundamental knowledge of how you can make the best deals with the limited resources you have and explain basic terminologies in simple and practical ways that you will understand.
The understanding of economics is as vital as balancing a household budget is important.
Economics has a direct impact on every minute of our everyday lives because economics is invariably the study of how and why of the different choices we make daily.
In this article, we are taking a look at the five basic economic concepts every consumer need to know.
Scarcity is one of the basic economic concepts every consumer need to know
Of the five basic economic concepts every consumer needs to know, scarcity is one of the most used terms because it directly affects the cost of buying a commodity or paying for a service.
Scarcity is one term we all understand one way or the other because it is more what we encounter daily and it is a solid fact and not an abstract phenomenon.
We find ourselves in a world of unlimited wants with limited means, so it is highly imperative to make daily choices.
Check out this example; wheat is needed for to bake bread, some want wheat for cereal and others want it for beer, and the list is endless but there is so much wheat that can be grown yearly.
The question would be how to decide the percentage of wheat to be used for flour to bake bread? Or for cereal? Or beer? The only true answer and it is the type of market system which has a direct connection with scarcity.
The knowledge of scarcity is vital for every consumer because it helps to make better decisions.
Supply and Demand
Every market system is supply and demand driven. Supply and demand form another of the five basic concepts every consumer need to know because of its relationship with scarcity.
Using beer again to explain this concept; if more people want more and more beer, it means that the demand for the production of beer would go up and this demand implies that you can charge money for beer.
So, more money is made when changing the wheat into beer than grinding wheat to make bread.
Guess what? More people go into the production of beer and after a few production cycles of making beer, there will be so much beer in the market that the prices of beer will naturally fall.
At the other hand, the price of flour increases steadily because of scarcity in the supply of wheat, this leads more producers to buy up more wheat to make flour.
So, scarcity affects the type of market system directly because it dictates the cost of production which affects the consumer directly.
On the basic level, supply and demand better explain why last year’s hit product is now half of the price the following year.
Costs-Benefits is a core foundation in consumer concepts
Every consumer considers the cost and the benefit to be derived from the goods or services to be acquired. So, it is imperative to pay attention to what costs and benefits really entail.
The idea of costs and benefits covers a wide area in economics because it has to do with rational expectations as well as rational choices.
Generally, consumers will always make the choice that offers the most benefit or value with the least cost.
People always want more than they pay for. All consumers should have a full awareness of costs and benefits which will help them make better decisions in any market system.
Costs and benefits make one of the core consumer concepts that everyone should know as highlighted in this article.
Using the beer analogy, we have used before: If the demand for beer is high, the breweries will need to hire more staff in order to make more beer. This is true only if the cost of beer and its sales volume is justified by the additional costs to the payroll and all the materials needed to make more beer.
Invariably, the consumer can only afford the beer his or her money can buy and not the best-tasting bottle of beer that is available.
Advertising and other commercials have the power to tweak the emotional centers of the brain to fool the mind into believing that there are additional benefits in a given item which causes consumers to pay more.
A true knowledge of costs and benefits will save you a lot from getting bamboozled.
This is why this article is quite important to help you through the five basic economic concepts every consumer need to know.
Everything Is in the Incentives
You may wonder what has incentive has got to do with the basic economic concepts that every consumer need to know?
Have you ever changed your mind because of that tiny extra value you would get if you made a slight change? Yes, we all have done that before. That little extra value you will get what incentives is all about.
So, it is important if we took a few words to further buttress and explain how important incentives can really be.
Incentives affect everything depending on how it is used. When incentives are aligned with the policies and goals of a company, it helps to speed up production and smiles to the employees but when it is not properly motivated, it becomes a big problem on its own.
A safe example of incentives when it is negatively motivated: you tell your workers if they increase production by a certain percentage, they stand to get an extra package, and instead of them focusing on standard, the focus on speed and you have poorly made items or packaged goods. But when the incentives are well motivated the benefits are highly exceptional.
Incentives directly affect the market system because of the little something you stand to get when you purchase certain brands or products.
Putting It All Together About What You Need To Know About Consumer Concepts
Scarcity is a phenomenon which is the overarching theme of economics. This may sound negative but it is entirely true. Scarcity is one of the main reasons why economics is plainly referred to as the dismal science, which simply means that we have to make our choices.
All choices are affected directly by the costs and benefits that impact the decision that is made, which leads us to a dynamic market system where all choices are played out through supply and demand.
These consumer concepts highlighted in this article aren’t powerful laws that should force all human interactions into preset patterns but rather, it is the recognition of patterns that emerged from hundreds, thousands, millions and billions of different people who made their choices from the information they had.
These are the basic consumer concepts everyone needs to know and this article quite helpful in guiding you to make better decisions in the market system. You are armed with just the basic knowledge needed to make the best deals from the unlimited human wants.