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The first chapter of the text provides and overview of how our economy works, an historical view of consumerism and consumer rights and responsibilities.
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Chapter 1Chapter 1
The ConsumerThe Consumer
in a Free Societyin a Free Society
Chapter ConceptsChapter Concepts
A free economy does not mean a problem-free economy.
Consumerism—the consumer’s effort to influence the marketplace—must continue to make itself heard, despite pressures.
Soundness of economy is based on a balance between production and consumption.
For many reasons, the consumer does not have the power in the marketplace that the classical economic theory espouses.
How the Economy OperatesHow the Economy Operates
Basic consuming units of the economy—households
Medium of exchange in the economy—money
Expenditures and savings—Expenditures help economy growSavings are investments in economy
Tools to Measure Performance Tools to Measure Performance and Growth of the Economyand Growth of the Economy
Gross national product (GNP)
Gross domestic product (GDP)
Net national product (NNP)
National income (NI)
Personal income Disposable
personal income Per capita
disposable income Discretionary
income
Consumers—Consumers—Who Are They?Who Are They?
Those in the labor force Homemakers Retirees Children Others: Incapacitated or
unemployed
Classical Economists’ ModelClassical Economists’ Modelof Consumer Behaviorof Consumer Behavior
Consumer sovereignty—Meeting consumers’ needs is the primary function of the economy.
People engage freely in productive enterprises to produce what consumers want.
Competition ensures that consumers get what they want at prices at or close to production costs.
Price SystemPrice System
If prices go down, decision makers curtail production.
If prices go up, they increase production.
Assumption: Consumers reach decisions about what to buy or not to buy based on full knowledge of the marketplace.
Organization and Operation Organization and Operation of a Free Economyof a Free Economy
Questions to Ask When Questions to Ask When Satisfying Consumer WantsSatisfying Consumer Wants
What makes our economy go? What differences exist among
consumers? Do consumers make decisions as
individuals or as part of groups? Do consumers really know what they
want? Can consumers determine quality? Can consumers be sure of safety?
Satisfying Consumer Wants Satisfying Consumer Wants ((continued)continued)
Can consumers check the quantity? Can consumers detect fraud? Can consumers cope with pricing
practices? Does competition control prices? Does market price measure subjective
value?
Lack of CompetitionLack of Competition
Oligopoly:A situation in which few sellers control
the majority of the supply of a product or service.
Monopolistic competition:A situation in which numerous sellers
have similar or identical products and services.
The First Era of the The First Era of the Consumer MovementConsumer Movement
Dr. Harvey W. Wiley—father of consumerism
American Medical Association (AMA) began analyzing drugs
The Jungle by Upton Sinclair Establishment of the Better Business
Bureau Pure Food and Drugs Act of 1906: The
first federal law in U.S. history enacted specifically to protect consumers
The Second Era of the The Second Era of the Consumer MovementConsumer Movement
First consumer oriented magazine, Consumer Research
Stock market crash—1929 President Franklin Roosevelt and New
Deal programs General Federation of Women’s Clubs—
sent letters to Congress endorsing various proposed laws penalizing manufacturers who defrauded consumers
Food, Drug, and Cosmetics Act of 1938
The Third Era of the The Third Era of the Consumer MovementConsumer Movement
The Hidden Persuaders by Vance Packard Silent Spring by Rachel Carson President John F. Kennedy
Consumer Bill of Rights Senator Paul Douglas
Truth-in-Lending legislation Senator Philip Hart
Fair Packaging and Labeling Act
(continued)
Third Era of the Consumer Movement Third Era of the Consumer Movement ((continued)continued)
Ralph Nader President Lyndon Johnson
Supporter of the consumer movement; passed more legislation than any other president in U.S. history
President Richard NixonSigned numerous pieces of consumer legislation
President Gerald FordAnnounced the right to consumer education
President Jimmy CarterAppointed numerous strong consumer advocates
Flow of Money in the EconomyFlow of Money in the Economywages towages tointerest tointerest to
rent torent toprofits toprofits to
transfers totransfers to
taxes to local, taxes to local, state, and federalstate, and federal
governmentsgovernments
retailersretailers
savingssavings
governmentgovernment
current goodscurrent goodsand servicesand services
producers ofproducers ofraw materialsraw materials
processorsprocessors
wholesalerswholesalers
financialfinancialinstitutionsinstitutions
ConsumersConsumers
who spend forwho spend forwho paywho pay
Consumer RightsConsumer Rights
Right to safety Right to be
informed Right to choose Right to be
heard Right of redress
Right of consumer education
Right of environmental health
Right of service
Consumer ResponsibilitiesConsumer Responsibilities
Be aware of role and function in the economy
Perform role effectively Avoid waste; be aware of responsibility to
future generations Do not exploit those in the labor force Be honest Protest when a product or service is not
what it is advertised to be
Global EconomyGlobal Economy
Outsourcing International marketing and sales Westernization Globalization World Consumer Rights Day International Organization of
Consumers Unions
How Do You View It?How Do You View It?OutsourcingOutsourcing
What are your opinions on outsourcing?
Do you think outsourcing is useful to U.S. firms because it’s a quick and cost-effective alternative to hiring fulltime employees, or do you think it is detrimental to the U.S. labor force, many of whom have lost their jobs?
Truth-in-Lending ActTruth-in-Lending Act
Requires creditors to disclose to the consumer in writing certain cost information, such as thethe annual percentage rate, before consumers enter into credit transactions.
Lets consumers know what finance charges will be.
Protects against unauthorized use of credit cards.
Regulates the advertising of credit terms.