Achievement Standard 90195
Describe concepts related to
conusmer choice and demand
Needs
 Needs are those things that individuals require for
life.
 Basic needs are food, shelter (clothing) and water
 In modern life however other things can also be
considered needs – electricity, transport, medical
care
 Needs must be satisfied before anything else
 Needs are sometimes referred to as necessities.
Wants
 Wants are those things we would like to
have to make life more enjoyable
 Wants are unlimited– Because they wear out and need to be replaced
– Because most people always want more than
they currently have
 How do people get the things they
want/need?
Limited Means
 Means are our personal resources
 For most people this means their time, skills
and income
 Everyone has limited means
– that is their time, skills and income is not
enough to satisfy all of their wants and needs
 People use their limited means to satisfy
firstly their needs then their wants.
Income
 People earn income from ownership or from
selling resources
 Most people earn income from selling their labour
for wages.
 People can also earn income from financial assets
(interest), property (rent), shares (dividends)
 Some people earn more than others because they
have more or better resources to sell
Other forms of personal income
 Wages
 Salaries
 Fees
 Commission
 Royalties
 Earned per hour
 Earned annually
 Earned by
professionals
 Earned by salespeople
 Earned by
artists/authors
Time
 Even the richest person only has 24 hours in
a day therefore time is always scarce
 Once you have done the things that you
need to do – go to school/work, eat, sleep,
do household chores – there may be little
time to do the things you want to do
Skills
 Skills come from our education and ability
 Few people have the skills to do everything
for themselves
 Changes in technology mean we need to
update our skills
 The more skills we have the more our labour
will be worth
Increasing our Means
 Combining co-operatively in household, whanau,
hapu, iwi groups can increase our access to skills
we need
 Furthermore hapu/iwi groups can increase their
means due to customary fishing rights or Treaty
settlements
 Even flatting situations are an example of finding
ways of overcoming our limited means
Limited means vs unlimited
wants
 Because means are limited and wants are
unlimited there is scarcity.
 This means people must make choices
about which wants to satisfy.
 Whenever a choice is made something else
must be given up – this is called the
opportunity cost.
This is a very common
exam question –
memorise these three
sentences.
Making choices
 Our values influence the decisions that we
make.
 Values are our deeply held personal beliefs.
 Because they are personal beliefs,
everyone’s values are different and
therefore the decisions they make will be
different
Influences on Values
 Upbringing (family)
 Culture / cultural
beliefs
 Religion
 Gender
 Age
 Peer pressure (friends)
 Media
 Income/wealth
 Education
Important Values
 Honesty
– Being truthful, sincere, fair
 Integrity
– Someone with integrity is someone you can rely on
 Fair dealing
– Being straight with people – no rip offs, no taking
advantage of others
 Consideration of others
– Being respectful of others feelings
What is demand?
The quantity (that is the
amount)
of a good or service
Demand is…
that a consumer (that is
someone who uses goods
and services)
is willing and able to
purchase
at a range of given prices
A
Demand
Schedule
This schedule tells us that if the price of a moro bar is $3, Jeff would demand
onethat
per week
The schedule has a title
The price is expressed in
includes:
whatisbar
itais,
it isJeff would
A
schedule
table
showing
the amount
product
$demand
and of
is aset
outper
in order
if demand
the price
of a moro
iswho
$2.50,
three
week
for,
what
period
it
relates
to.
that will be demanded at a range of prices. A demand
(high to schedule
low or low to
could
be for
market five
high)
if the price of
a moro
baran
is individual,
$2.00, Jeffgroup
wouldordemand
per week etc.
Jeff’s Weekly Demand Schedule for Moro
Bars
Price $
Quantity
3.00
1
2.50
3
2.00
5
1.50
7
1.00
10
Jeff’s Weekly Demand Schedule for Moro
Bars
Price $
Quantity
Alternatively we
JoinThe
each
point
a the
graph
iswith
titled,
could
display
the
line.
Label
the
D and
axes
arethe
even
scaled
Plot
points
that
are
information
in
a line
givenlabelled.
in the schedule.
graph
Jeff’s Weekly demand for moros
Price $
3.00
1
2.50
3
2.00
5
1.50
7
1.00
10
3
2
D
1
2
4
6
8
10
Quantity
Change in Quantity Demanded
An increase in price from
$2 to $2.50.
Jeff’s Weekly demand for moros
Price $
The
diagram
If the
price must
were have
to
arrows
to show
increase
fromthe
$2 direction
to $2.50, of
the change.
Jeff would
demand 2
fewer moros. (from 5 to
three).
3
2
D
1
This is called a decrease
in the quantity demanded
2
4
6
8
10
Quantity
Change in Quantity Demanded
A decrease in price from
$1.50 to $1.
Jeff’s Weekly demand for moros
Price $
If the price were to
decrease from $1.50 to
$1, Jeff would demand 3
more moros. (from 7 to
10).
3
2
D
1
This is called an increase
in the quantity demanded
2
4
6
8
10
Quantity
The Law of Demand
The law of demand states – as the price of a product increases the quantity
demanded will decrease (and vice versa) ceteris paribus.
Ceteris paribus is a Latin phrase that translates to “all other things being equal”.
In other words “if everything else stays the same”.
The ceteris paribus assumptions allows us to isolate the impact of a price
change without it being affected by changes in income, tastes and preferences
or other things that may change people’s demand.
The law of demand means that the demand curve will always slope
downwards to the right
Increase in Quantity
Demanded
Price
P1
P2
D
Q1
Q2
Quantity
 Occurs when the price
of a product falls
 Price falls from P1 to
P2 and the quantity
demanded increases
from Q1 to Q2
 This is an increase in
quantity demanded
Decrease in Quantity
Demanded
Price
P2
P1
D
Q2
Q1
Quantity
 Occurs when the price
of a product increases
 Price rises from P1 to
P2 and the quantity
demanded decreases
from Q1 to Q2
 This is a decrease in
quantity demanded
Using a demand curve
 Lisa’s Demand for Hummus
Price
2
D
5
Quantity
 The graph shows Lisa’s
demand for hummus.
 If the price of hummus is
$2 we can calculate that
Lisa will spend $10 ($2 X
5) on hummus
 The shaded area
represents the amount
Lisa spends on hummus
Using a demand curve
Price
 Lisa’s Demand for
Hummus
4
2
2
5
Quantity
 If the price increases
to $4 then the quantity
demanded by Lisa falls
to 2 units.
 Lisa now spends $8
($4 X 2) on hummus.
 This is a reduction of
$2 overall.
Other Influences on Demand
 There are other things that will impact on our
demand for a product besides its price:
–
–
–
–
–
–
Income
Income taxes (also called direct taxes)
Advertising
Tastes/preferences/fashions
Price of substitute
Price of complement
 If one of these factors change the ceteris paribus
condition no longer holds so our demand curve is
redrawn
Example
 The table shows Peter’s
Peter’s demand schedule
demand schedule for
for apples
Price
Quantity
apples.
 Peter receives a pay
0.50
10
rise when he starts a
new job. This means
he can now afford to
1.00
8
buy more apples.
 His new demand
4
schedule will look like 1.50
this
2.00
2
Example
 The table shows Peter’s
Peter’s demand schedule
demand schedule for
for apples
Price
Quantity Quantity
apples.
(after rise)
 Peter receives a pay
0.50
10
14
rise when he starts a
new job. This means
he can now afford to
1.00
8
11
buy more apples.
 His new demand
4
7
schedule will look like 1.50
this
2.00
2
4
Increase in Demand

Price
 His demand curve also
needs to be redrawn
1
D’
D
8
11
Quantity
An increase in demand
occurs when:
1. Price of a substitute
increases
2. Price of a complement
falls
3. Income increases
4. Direct taxes fall
(effectively increases
income)
5. Tastes, or fashions
change in favour of the
product
6. Advertising
Substitutes and Complements
 Substitutes
– Are goods that can be consumed in place of one
another
– E.g. Butter/margarine, peanut butter/marmite
– If the price of a substitute increases people will buy
more of the other good
 Complements
– Are goods that are normally consumed together
– E.g. Cars/petrol, coffee/milk/sugar
– If the price of a complement increases people will buy
less of the other good
Household spending
 Household spending is sometimes known as consumer
spending (or consumption)
 Household spending falls into two main categories –
spending on necessities and spending on luxuries (roughly
equivalent to needs and wants)
 Households may also save some of their income (for future
spending)
 Households need to satisfy their needs first of all before
moving on to their wants
Spending Patterns in
Low Income Household
100
90
80
70
60
50
40
30
20
10
0
Low
Income
High
Income
Types of goods
 In low income
households the
majority of their
income is spent on
meeting essential
needs
 In higher income
households there
will be a higher
percentage of
income spent on
luxury items.
Spending Patterns in low income
households
 This is because there is certain level of necessities
that all households need e.g. housing, food,
electricity
 Low income households spend most of their
income just covering these necessities.
 Therefore there is little left to enable them to
purchase luxuries
Spending Patterns in higher
income households
 As incomes rise – the need for necessities
remains the same – the percentage of income
spent on necessities falls
 This means there is more leftover to spend on
luxuries/save
 In many cases households will buy fewer inferior
goods to meet their needs and more normal/luxury
goods
Inferior Goods
 Inferior goods are those goods for which
demand falls as income rises
 They are usually cheaper substitutes for
other, more luxurious goods
 E.g. mince/sausages/cheap cuts of meat are
inferior substitutes for steak