HUSC 3362 Chp 1: The Consumer in a Free Society


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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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HUSC 3362 Chp 1: The Consumer in a Free Society

  1. 1. Chapter 1 The Consumer in a Free Society
  2. 2. Chapter Concepts <ul><li>A free economy does not mean a problem-free economy. </li></ul><ul><li>Consumerism—the consumer’s effort to influence the marketplace—must continue to make itself heard, despite pressures. </li></ul><ul><li>Soundness of economy is based on a balance between production and consumption. </li></ul><ul><li>For many reasons, the consumer does not have the power in the marketplace that the classical economic theory espouses. </li></ul>
  3. 3. How the Economy Operates <ul><li>Basic consuming units of the economy— households </li></ul><ul><li>Medium of exchange in the economy— money </li></ul><ul><li>Expenditures and savings — </li></ul><ul><ul><li>Expenditures help economy grow </li></ul></ul><ul><ul><li>Savings are investments in economy </li></ul></ul>
  4. 4. Tools to Measure Performance and Growth of the Economy <ul><li>Gross national product (GNP) </li></ul><ul><li>Gross domestic product (GDP) </li></ul><ul><li>Net national product (NNP) </li></ul><ul><li>National income (NI) </li></ul><ul><li>Personal income </li></ul><ul><li>Disposable personal income </li></ul><ul><li>Per capita disposable income </li></ul><ul><li>Discretionary income </li></ul>
  5. 5. Consumers— Who Are They? <ul><li>Those in the labor force </li></ul><ul><li>Homemakers </li></ul><ul><li>Retirees </li></ul><ul><li>Children </li></ul><ul><li>Others: Incapacitated or unemployed </li></ul>
  6. 6. Classical Economists’ Model of Consumer Behavior <ul><li>Consumer sovereignty—Meeting consumers’ needs is the primary function of the economy. </li></ul><ul><li>People engage freely in productive enterprises to produce what consumers want. </li></ul><ul><li>Competition ensures that consumers get what they want at prices at or close to production costs. </li></ul>
  7. 7. Price System <ul><li>If prices go down, decision makers curtail production. </li></ul><ul><li>If prices go up, they increase production. </li></ul><ul><li>Assumption: Consumers reach decisions about what to buy or not to buy based on full knowledge of the marketplace. </li></ul>
  8. 8. Organization and Operation of a Free Economy
  9. 9. Questions to Ask When Satisfying Consumer Wants <ul><li>What makes our economy go? </li></ul><ul><li>What differences exist among consumers? </li></ul><ul><li>Do consumers make decisions as individuals or as part of groups? </li></ul><ul><li>Do consumers really know what they want? </li></ul><ul><li>Can consumers determine quality? </li></ul><ul><li>Can consumers be sure of safety? </li></ul>
  10. 10. Satisfying Consumer Wants ( continued) <ul><li>Can consumers check the quantity? </li></ul><ul><li>Can consumers detect fraud? </li></ul><ul><li>Can consumers cope with pricing practices? </li></ul><ul><li>Does competition control prices? </li></ul><ul><li>Does market price measure subjective value? </li></ul>
  11. 11. Lack of Competition <ul><li>Oligopoly: </li></ul><ul><ul><li>A situation in which few sellers control the majority of the supply of a product or service. </li></ul></ul><ul><li>Monopolistic competition: </li></ul><ul><ul><li>A situation in which numerous sellers have similar or identical products and services. </li></ul></ul>
  12. 12. The First Era of the Consumer Movement <ul><li>Dr. Harvey W. Wiley—father of consumerism </li></ul><ul><li>American Medical Association (AMA) began analyzing drugs </li></ul><ul><li>The Jungle by Upton Sinclair </li></ul><ul><li>Establishment of the Better Business Bureau </li></ul><ul><li>Pure Food and Drugs Act of 1906: The first federal law in U.S. history enacted specifically to protect consumers </li></ul>
  13. 13. The Second Era of the Consumer Movement <ul><li>First consumer oriented magazine, Consumer Research </li></ul><ul><li>Stock market crash—1929 </li></ul><ul><li>President Franklin Roosevelt and New Deal programs </li></ul><ul><li>General Federation of Women’s Clubs — sent letters to Congress endorsing various proposed laws penalizing manufacturers who defrauded consumers </li></ul><ul><li>Food, Drug, and Cosmetics Act of 1938 </li></ul>
  14. 14. The Third Era of the Consumer Movement <ul><li>The Hidden Persuaders by Vance Packard </li></ul><ul><li>Silent Spring by Rachel Carson </li></ul><ul><li>President John F. Kennedy </li></ul><ul><ul><li>Consumer Bill of Rights </li></ul></ul><ul><li>Senator Paul Douglas </li></ul><ul><ul><li>Truth-in-Lending legislation </li></ul></ul><ul><li>Senator Philip Hart </li></ul><ul><ul><li>Fair Packaging and Labeling Act </li></ul></ul><ul><ul><li>(continued) </li></ul></ul>
  15. 15. Third Era of the Consumer Movement ( continued) <ul><li>Ralph Nader </li></ul><ul><li>President Lyndon Johnson </li></ul><ul><ul><li>Supporter of the consumer movement; passed more legislation than any other president in U.S. history </li></ul></ul><ul><li>President Richard Nixon </li></ul><ul><ul><li>Signed numerous pieces of consumer legislation </li></ul></ul><ul><li>President Gerald Ford </li></ul><ul><ul><li>Announced the right to consumer education </li></ul></ul><ul><li>President Jimmy Carter </li></ul><ul><ul><li>Appointed numerous strong consumer advocates </li></ul></ul>
  16. 16. Flow of Money in the Economy wages to interest to rent to profits to transfers to taxes to local, state, and federal governments retailers savings government current goods and services producers of raw materials processors wholesalers financial institutions Consumers who spend for who pay
  17. 17. Consumer Rights <ul><li>Right to safety </li></ul><ul><li>Right to be informed </li></ul><ul><li>Right to choose </li></ul><ul><li>Right to be heard </li></ul><ul><li>Right of redress </li></ul><ul><li>Right of consumer education </li></ul><ul><li>Right of environmental health </li></ul><ul><li>Right of service </li></ul>
  18. 18. Consumer Responsibilities <ul><li>Be aware of role and function in the economy </li></ul><ul><li>Perform role effectively </li></ul><ul><li>Avoid waste; be aware of responsibility to future generations </li></ul><ul><li>Do not exploit those in the labor force </li></ul><ul><li>Be honest </li></ul><ul><li>Protest when a product or service is not what it is advertised to be </li></ul>
  19. 19. Global Economy <ul><li>Outsourcing </li></ul><ul><li>International marketing and sales </li></ul><ul><li>Westernization </li></ul><ul><li>Globalization </li></ul><ul><li>World Consumer Rights Day </li></ul><ul><li>International Organization of Consumers Unions </li></ul>
  20. 20. How Do You View It? Outsourcing <ul><li>What are your opinions on outsourcing? </li></ul><ul><li>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? </li></ul>
  21. 21. Truth-in-Lending Act <ul><li>Requires creditors to disclose to the consumer in writing certain cost information, such as the annual percentage rate, before consumers enter into credit transactions. </li></ul><ul><li>Lets consumers know what finance charges will be. </li></ul><ul><li>Protects against unauthorized use of credit cards. </li></ul><ul><li>Regulates the advertising of credit terms. </li></ul>