Question

guided reading activity 3 - 1
for use with textbook pages 65 - 69
consumption, income, and decision making
recalling the facts
directions: use the information in your textbook to answer the questions.
disposable and discretionary income

1. what are the characteristics of a consumer?
2. what are the two types of income?

a.
b.

1. how are the two types of income different from one another?
2. what factors help determine a persons potential earning power?

decision making as a consumer

1. what are the three decisions consumers have to make?

a.
b.
c.

1. what scarce resources are involved in making a purchase?
2. what must a person decide if they choose to buy a higher - priced product over a lower - priced product?
3. how do economists define rational choice?

Explanation:

1. A consumer is an individual or household that purchases goods and services for personal use. They have needs and wants, make purchasing - decisions, and have limited resources.
2. The two types of income are disposable income (income after taxes) and discretionary income (income left after paying for necessities).
3. Disposable income is what's left after tax deductions and is used for all types of spending including necessities and non - necessities. Discretionary income is what remains after paying for basic necessities like housing, food, and utilities, and is used for luxury or non - essential items.
4. Factors determining potential earning power include education level, skills, work experience, occupation, location, and economic conditions.
5. Consumers must decide what to buy, when to buy, and how much to buy.
6. Scarce resources involved in making a purchase include money, time, and effort.
7. If choosing a higher - priced product over a lower - priced one, a person must decide that the additional benefits or features of the higher - priced product are worth the extra cost.
8. Economists define rational choice as making decisions that maximize utility (satisfaction) given limited resources.

Answer:

1. An individual or household that purchases goods and services for personal use, has needs/wants, makes purchasing - decisions, and has limited resources.
2. a. Disposable income (income after taxes)

b. Discretionary income (income left after paying for necessities)

1. Disposable income is for all spending after tax deductions; discretionary income is for non - essential spending after paying for necessities.
2. Education level, skills, work experience, occupation, location, economic conditions.
3. a. What to buy

b. When to buy
c. How much to buy

1. Money, time, effort.
2. That the additional benefits/features of the higher - priced product are worth the extra cost.
3. Making decisions that maximize utility (satisfaction) given limited resources.