roles of consumers in the economy

Question 1

define consumer sovereignty

Answer 1

consumer soveireignty is the inherent power that consumers hold over businesses with their ability to dictate demand and therefore supply

OR refers to patterns of consumer spending which determine the pattern of production and resource allocation

Question 2

what are the benefits of consumer soverignty

Answer 2

improvement in technical efficiency, allocative efficiency and dynamic efficiency

Question 3

define technical efficiency (also known as productive efficiency)

Answer 3

Technical efficiency is the effectiveness with which a given set of inputs is used to produce an output.

A firm is said to be technically efficient if a firm is producing the maximum output from the minimum quantity of inputs, such as labour, capital, and technology.

basically efficiency of resources

Question 4

define allocative efficiency

Answer 4

property of an efficient market whereby all goods and services are optimally distributed among buyers in an economy (efficiency of satisfying demands of consumers)

Question 5

define dynamic efficienecy

Answer 5

a firms ability to respond to changing consumer preferences and improvements in technology over time

Question 6

factors that reduce consumer sovereignty

Answer 6

marketing and misleading or deceptive conduct planned obsolescence
anti competitive behaviour

Question 7

planned obsolescence

Answer 7

aka the iPhone thing, manipulating consumers to buy a product more than they would otherwise.

Question 8

anti competitive behaviour

Answer 8

firms who operate in markets where there are few other sellers which diminishes the ability of consumers

Question 9

APC?

Answer 9

Average propensity to consume = proportion of total income spent on consumption

APC= C/Y

Question 10

MPC?

Answer 10

change in C over change in Disposable Income

or ΔC/ΔY, where Y is disposable income and C is consumption expenditure

Question 11

consumption fucntion

Answer 11

C = C0 + cY (C is total consupmtion, C0 is autonomous consumption, c is MPC and Y is disposable income)

Question 12

Savings function

Answer 12

S = -C0 + sY, where S is total savings, -C0 is autonomous saving, s is MPS and Y is disposable income

Question 13

MPS

Answer 13

ΔS/ΔY (s is savings and Y is didsposable income

Question 14

APS

Answer 14

S/Y or savings on disposable income

Question 15

Factors influencing the decision of whether to spend or save

Answer 15

1. Cultural Factors
2. Personality Factors
3. Confidence and future expectations
4. Any specific future spending plans
5. Tax Policies
6. Availability of Credit - more international banking opportunities for AUS citizens have resulted in increased income

Question 16

define Price mechanism

Answer 16

Price mechanism refers to the system where the forces of demand and supply determine the prices of commodities and the changes therein.

Question 17

factors which influence supply and demand

Answer 17

prices of substitutes and complements, preferences and tastes, prices, income, environmental sustainability, advertising

Question 18

sources of income

Answer 18

earned income (wages, salaries) [LABOUR]
rent (ownership of real property) [LAND]
interest [CAPITAL]
profits [ENTERPRISE]

Question 19

real vs financial assets

Answer 19

real - property, real estate, durable investments like land, capital etc

financial assets - intangible assets such as bonds, shares, cryptocurrency etc

Question 20

social welfare payments

Answer 20

1. Pensions – for aged, disabled, widows, veterans etc
2. Family allowances – low-income families and dependent children
3. Unemployment benefits – unemployed people (are actively seeking work but cannot find work)
4. Youth allowances – students from low-income families in full time education/training
5. Special Payments – to Aboriginal and Torres Strait Islanders for advancement in society