Consumer Spending

Sources: Powell Center for Economic Literacy

Suggested Target Age: Grades 5-8

Topics Covered: consumers and producers, spending decisions, choices, scarcity, opportunity costs,

Time Required: 30-45 minutes

What Will the Students Learn?

  • how spending for consumer goods or services satisfies wants.

  • how to identify consumer spending decisions.

  • how to compare and contrast individual spending with group spending.

State Contents Standards Key
Virginia: Civics and Economics: CE.9, CE.10, CE.11. Mathematics: 5.3, 5.4, 6.8, 7.5, 8.3.
Indiana: Social Studies: E.1.1, E.1.2. Mathematics: 5.2.5, 5.2.6, 6.2.1, 7.2.1.
Florida: Social Studies: SS.D.1.2.1, SS.D.1.2.2, SS.D.1.1.3, SS.D.2.2.4, SS.D.1.3.3, SS.D.2.3.1; Mathematics: 3.2, 3.3.3.
California: History and Social Sciences: 12.1.1, 12.1.2. Mathematics: Number Sense 2.0.

Materials Needed:

Definitions:

Consumer: one who buys goods and services to satisfy his/her wants
Consumer spending decision: a choice about which goods or services to buy and which not to buy
Money: anything generally accepted in exchange for goods and services.

Lesson Plan:

Teacher: Follow the script throughout the lesson.

  • Today we will study a story about consumer spending decisions, but first we need to find out what a consumer is.  Are any of you consumers?  Ok.  How do you know you’re a consumer?

Is there anyone here who isn’t a consumer?  That’s not possible, is it?  We all buy and use goods and services to satisfy our wants, so we’re all consumers.

  • If we’re all consumers, we must have some knowledge about consumer spending decisions. How do you decide what to buy and what not to buy?
  • Does everyone have to make consumer spending decisions? Why?  Right – because of scarcity.  There are limited resources on Earth to make goods and services, and all of us have limited amounts of money to use to purchase those goods and services, so we have to consider trade-offs and make choices.

Consumer spending decisions are the choices a person makes about which goods and services to buy and which not to buy.

  • Since we have limited money, our goal should be to make wise consumer spending decisions – to use our money to satisfy as many of our wants as we can.
  • Ok, here’s the situation.  Marlin’s mother gives him $30 and a ticket to the State Fair.  She drops him off at the front gate at 10:00a.m., and she tells him that she will pick him up at 6:00 p.m. after she gets off work.

Marlin goes in the front gate and right past the entrance he sees a stand with very cool t-shirts.  The perfect one in his size is $24.  Hey!  He’s got $30.  Should he buy it?

  • It depends, doesn’t it?  Marlin really needs to consider his list of wants for the day and the opportunity cost of buying the shirt. And, if he decides the opportunity cost is worth it, then it’s fine for him to buy the shirt.  Each person has his own individual wants to satisfy.

By the way, what economic role is Marlin playing now?  Right, he’s a consumer.
By coming to the state fair, what is Marlin consuming – a good or a service?  Right, a service.  If he buys the shirt, what will he be consuming?

  • Ok, so back to the story.  Fortunately for Marlin, as he’s waiting for the t-shirt seller to finish with another customer, a clown walks by, handing out the daily State Fair program.

(Distribute Exercise 2.1) Look at your copy of the State Fair Program.
As Marlin looks at the program, it occurs to him that he has some other wants besides the cool t-shirt.  Good thinking Marlin!
What happens if he spends $24 on the t-shirt?  How much does he have left for the rest of the day?  Do you think $6 is going to last him for the next 8 hours?  It could . . . but if Marlin is like most of us, he’ll probably have some other wants during the day.
He steps out of the t-shirt line to look at the program.
As I tell you what Marlin is thinking, put a check mark next to each of his wants on your copy of the program.
“Wow!  There is lots to do here!” Marlin thinks as he looks at the program.  “Let’s see.  I want to ride rides all day – that’s $9.”
“I love the fun house! I can make noises and scare all the little kids.”
“I know I’m going to be hungry.  Let’s see:  cheesy fries – yum!  Cotton candy!  Onion rings!  Corn dogs – I can have two!  Mom never lets me have two at home.”
“Trick horses.  That would be cool to watch.”
“Oh, Good.  I can go look at all the animals without spending any money.”
“Games of Chance.  I’ll bet they have a free-throw game.  I’m good at that.  Maybe I can win a prize for Mom.  I’m going to play one game every hour – that’s eight games.”
“Pie!  I don’t like pie!  Why would anybody pay to do that?!”

  • Ok, Let’s total up the prices of Marlin’s economic wants.  Write the prices of everything Marlin wants on the back of the program – and don’t forget the t-shirt!

You should have on your list:
T-Shirt               $24.00
Ride pass          $ 9.00
Food                 $11.50
Fun house         $ 3.00
Games             $ 8.00
Total                $55.50

What’s the total?  Right –  $55.50.  Whoops!  I’d say Marlin has a problem.  He doesn’t have enough money to satisfy all his wants. 
That’s right, good old scarcity.
Marlin’s limited money isn’t going to allow him to satisfy all his wants.  He’s going to have to make some trade-offs.

  • Now that Marlin has awakened to the fact that he can’t satisfy all his wants, he reconsiders the t-shirt.  He realizes that he has to make a choice.  If he buys the real cool t-shirt, he must give up his plans for a fun day with lots of activities, games, and food, food, food.

Good job, Marlin!  Now, you’re facing your opportunity cost.   Who remembers what an opportunity cost is?  Right, it’s

the opportunity given up when you make a choice

And what is the opportunity cost to Marlin of buying the t-shirt?  Right — a “fun day with lots of activities, games, and food, food, food!”

  • Now, if the t-shirt is really, really cool, you might think the trade off is worth it, but Marlin doesn’t.  In fact, he’s thinking, “I’m really glad that clown came along, or I’d have been the clown.  I almost got so caught-up in a short-term want that I forgot that I have a whole day full of wants ahead of me!  A t-shirt is not worth giving up a full day of fun!”

Marlin’s story has shown us another example of how scarcity forces us to choose and bear opportunity costs. 
Marlin’s story shows us how important it is to have a plan.

  • So, Marlin decides the t-shirt isn’t that big a deal.  Cross $24 off the list of wants.

Now does he have enough money to get through the day and his list?  Nope!  His wants still total $31.50. 
Looks like Marlin is going to have to make some other trade-offs during the day.

  • Let’s finish Marlin’s story because, as you’ll see, even after Marlin has made his difficult choice, good old Scarcity is going to keep hanging around!

When we catch up to Marlin again, we find that his wants have changed.  He did buy an all-day ride pass, but after running from ride to ride, he was hungry and thirsty, so he bought a lemonade and a candy bar.  How much money does he have left?
Good, $18.  He sticks it back in his pocket and runs off to the animal exhibits. 
Later, he bumps into three of his friends.  It is 2:00 pm and the energy from the candy bar and lemonade have worn off.  He tells his three friends that he is starving and they say they are, too.
Marlin and his friends go to the Cheesy Fries stand.  He orders one order of Cheesy Fries. Now he has how much?  Right, $15.50.
But, his friends have spent all their money, and they’re trying to grab his fries.  Marlin must make another consumer choice.  How much for three orders of Cheesy Fries?  Right, $7.50.  Marlin is a stand-up guy.  He gets his friends lunch.  He now has how much?  Right, $8.

  • Next Marlin and his friends go to the free-throw game.  Marlin pays $1 for a chance at making three shots and winning a prize.  He misses the last shot.  He tries again.  He misses two shots.  Something feels different.  His friend points out that the rim looks smaller than normal.

Marlin is just about to walk away, but one of his friends brags that he could certainly shoot better than Marlin, small rim or no small rim.  Marlin hesitates.
As with every consumer spending decision he has made today, Marlin is faced with an opportunity cost.  He now has $6 and he hasn’t bought most of the food he wanted to try and he hasn’t gone to the fun house.  Should he walk away or fork over another dollar?  That’s a problem with opportunity cost decisions – we don’t know exactly what is going to happen.  The future is uncertain. 
We all evaluate Marlin’s opportunity cost differently, don’t we?  And that’s important – each person gets to make his own decisions about which opportunity costs to bear.  You may not agree with his choice, but Marlin decides to risk another dollar.  He puts more arch on the ball, makes all three shots, and gets a cute Teddy Bear to thank his Mom for letting him come to the fair.  I’d say Marlin was happy with his choice – but what if he’d missed the basket?

  • Ok, ok!  Let’s let Marlin and his…how much does he have left?  Yes, very good, $5.  Let’s let Marlin blow his $5 in peace, and review the economic terms we used today:
  • Marlin spent all day buying goods and services.  What do we call him?  CONSUMER
  • Marlin has been spending the day making decisions about how to spend his $30.  What are those decisions called?  CONSUMER CHOICES or CONSUMER SPENDING DECISIONS
  • What economic condition forced Marlin to make all those decisions?  SCARCITY
  • What is the economic term for the t-shirt Marlin gave up to consume rides and food all day?  OPPORTUNITY COST
  • Was Marlin better off with or without a spending plan?
  • What are the advantages of having a spending plan?
  • Did Marlin have both long and short term spending goals for his day at the fair? Yes.  Now – Shirt, Later – Rides and food.

Notice that by planning for his long-term goal, Marlin had more flexibility in dealing with his short-term wants.

  • What consumer spending decision allowed Marlin to have the greatest chance of satisfying his long-term wants?  GIVING UP THE T-SHIRT AND BUYING AN ALL-DAY RIDE PASS INSTEAD
  • What are some examples of how Marlin’s short-term wants changed over the day?  HIS FOOD CHOICES CHANGED, AND HE HAD MONEY TO SPEND ON HIS FRIENDS
  • So, is it easier to get what you want with a plan or by accident?

Exercise 2.1

Welcome to the Fair!!

Today’s    Program:
10:00 –  9:00 p.m.  rides                                           $9 – all-day pass
10:30 – 7:00 p.m.  animal exhibits               no charge
10:00 – 9:00 p.m.       haunted fun house                  $3.00
10:00 – 9:00 p.m.       games of chance                     $1.00/game
11:00, 1:00, 3:00        trick horses                               no charge
12:00, 2:00, 7:00        pie-eating contest                    $1.00 to enter
5:00 p.m.                 hog-calling contest                 $1.00 to enter
7:00 p.m.                 square-dance exhibition             no charge

Souvenir booths open 10:00a.m. – 9:00p.m.
Food Stands Located Throughout the Grounds – See Map on Back

Text Box: Menu  Soft Drinks             $2.00    Candy                       $1.00    Cotton Candy          $3.00    Ice Cream                 $2.50    Popcorn                    $2.00    Pretzels                     $2.50    	Cheesy Fries            $2.50    Onion Rings             $3.50    Corn Dogs               $2.50    Hamburger               $5.00     Pizza (slice)             $4.00    Nachos                     $4.00