Understanding Consumer Rights and Information Search, Exams of Economics

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FHCE 3100E Exam 2 Questions with Answers Latest Update 2024 Test Key Legislation - Correct answer Federal food/drug and cosmetic act Federal trade commission Civil rights act Consumer credit protection act Fair credit reporting act Equal credit opportunity act Fair credit billing act Fair debt collection act Food labeling act Review of the Steps in the Consumer Buying Process - Correct answer Repurchase -assessing need or want - searching for information -evaluating alternatives -selecting Purchase -buying Post purchase -evaluating after purchase through use and comparisons *consumer protection should occur at every one of the these 6 steps; we tend to complain more and seek restitution at the 6th step logically What do we complain about? - Correct answer Identity theft Debt collections Banks and lenders Shop at home/catalog sales Prizes/sweepstakes/lotteries Internet scams Auto complaints Mobile/telephone services Credit cards (ties to ID theft since they are used in the theft Consumers' Options - Correct answer what are consumers' options during the post purchase step of a product or service when they have been harmed in some way, the product does not perform properly, or the service is unsatisfactory? You seek redress Redress - Correct answer Consumers have a "right to redress which is the right to seek and obtain satisfaction for damages incurred through the use of a product or service" Where to complain - Correct answer Local business - place from where you purchase Business headquarters Manufacturer Self-regulatory organizations Government consumer protection agencies Small claims court/civil court Class action suits Affect Consumer Redress - Correct answer No emotional outburst on phone or through email Act promptly Know your rights Get organized (when, receipts, where, model #, etc.) UT in writing If you are going to snail mail a letter or complaint, by what means do you mail the letter? - Correct answer certified of course, you then receive a receipt that your post has been received Keep Records - Correct answer Recommend consumer keep a file for sales receipts, contracts, warranty information, operating instructions, and owner's manuals for major purchases or services Get yourself a fireproof lockbox Steps 1 - Correct answer Returning to the place where the item was purchased or service rendered - If it is a meal, complain then, not later Currently no laws regulating refunds and stores are not required to post their policy but some do - Target’s policy: most unopened items in new condition and returned within 90 days will receive a refund or exchange. Some items have a modified return policy noted on the receipt Individual stores ET tier own refund policies - generally, merchandise purchased in store or on Walmart.com can be returned or exchanged within 90 days of purchase with or without receipt. There are exceptions to the general 90 day rule Be prepared to explain the problem - Calmly, don't blame person helping you Step Two (if step one fails) - Correct answer Contact the company's headquarters by phone, e-mail, or letter You can find the company's headquarter information on the internet The following information should be included when a complaint is in writing 1. Describe the purchase or service 2. The date and place of purchase or service 3. Name of the product or person who provided the service 4. The serial number of the product Legal Remedies - Correct answer Small claims courts or civil courts - has a limit - usually without an attorney - no jury, just the judge's ruling If you file a claim against someone you are then known as the "Plaintiff" (the initiator of the lawsuit) The defendant is the person you are suing The court, on behalf of the plaintiff, issues a summons to the defendant to appear in court If both show up, each presents their side to the JUDGE If the defendant does not show up, the Plaintiff wins - Judge Judy is a small claims court Legal Remedies Cont. - Correct answer Class Action Suits - Claims and rights of many people are handled by a single hearing -- several consumers banding together -- amount consumer receives is small, but the company has to pay out big money - examples: master settlement agreement, Enron, Erin Brockovich Poor quality products - Correct answer are different than fraud and must be addressed through redress Fraud = you must protect yourself before you become a victim Consumer Fraud - Correct answer Why? Marketplace is complex Enforcement is difficult Consumers are trusting, greedy, or lack ability to judge Legal definition of Fraud - Correct answer Making a false statement of a past or existing fact with the knowledge of its falsity, or with reckless indifference as to its truth, with the intent to cause someone to rely on such a statement and therefore give up property or a right that has value Easier.. - Correct answer Fraud occurs when an individual or company knowingly misrepresents or fails to reveal an important fact to the consumer, with the ultimate result that the consumer is cheated There must be a deliberate attempt to mislead the consumer Who are targets? - Correct answer Individuals who are unsure of themselves, are dissatisfied with their lives, or fail to use good judgement "There's a sucker born every minutes" - Correct answer Attributed to PT Barnum (Barnum and Bailey circus) Joe Bessimer (first man referred to as a con man; basically a thief and scalawag who took advantage of people) George Hull (Cardiff grant) The Cardiff Grant - Correct answer One of the most famous hoaxes in American history was a 10-foot-tall "petrified man" uncovered on October 16, 1869 by workers digging a well behind the barn of a William C. "Stub" Newell in New York Giant commission by George Hull During this time a great debate raged about the origination of mankind - one side said we can from God - another side said we are descended of Giants, thus they commissioned a Giant to prove the God side wring - Hull hired men to carve out an 11-foot-long block of gypsum in Fort Dodge, Iowa Types of Fraud - Correct answer 1. Contests 2. Investment and Pyramid Schemes 3. Charities 4. Food and Health Fraud 5. Medical Fraud 6. Repair services Contests - Correct answer If you get a piece of mail that says you have won a prize.. you have NOT! They want you to buy something or give them information Rule of thumb: don't participate if you have to pay to do so Pyramid/Ponzi schemes - Correct answer Come in many variations The earliest schemes involved a chain letter distributed with a list of 5-10 names and addresses on it. The recipient was told to send a specified small sum of money to the first person of the list. The recipient was then to remove this first person from the lost, move all of the remaining names up one place, and to add his own name and maybe more names to the bottom of the list - Succes in such ventures rested solely on the exponential growth of new members; Hence the name "pyramid", indicating the increasing population as each successive layer Bernie Madoff - Correct answer Big time Ponzi Theift Charities - Correct answer Pick a cause that you believe in and can verify is legitimate Plan your charitable giving making these donations once a year Watch out for phony charities Never allow anyone to pressure you to give - Cathy Cox, AFS-USA kept 61% of the funds that people donated Food and Health Fraud - Correct answer Typical Problem: - Dietary supplements - Cosmetics - Inaccurate information Food Product Cures - Correct answer Nutritives that cure physical ailments Legally products claiming to "cure" anything have to subjected to FDA approval If it is labeled as a dietary supplement it escapes FDA scrutiny Beauty Product Scams - Correct answer Quick fixes that will make us beautiful or handsome Cosmetics fall under FDA jurisdiction; however they only have to be "Safe" not effective Weight Loss Products - Correct answer Many products do work initially.. you lose water weight The only truly effective weight loss drugs for appetite suppression are sold by prescription Inaccurate information - Correct answer Stouffer's Lean Cuisine was labeled as having a certain amount of sodium, but it really had much more they were fined and had to make the information correct Medical Fraud - Correct answer Fee splitting: one doctor recommends you to see another and then they split the fee for the follow-up visit Conflict of interest: doctor orders tests and what you don't know is that the doctor owns the testing center Denial of claims: some insurance companies automatically deny all claims the first time they are filed Health Insurance Fraud - Correct answer Paying for unnecessary services or services that were never performed This type of insurance fraud is perpetuated by the Doctors and Hospitals themselves to inflate their payments $6 for one Tylenol tablet Fraudulent Repair Services - Correct answer Home Computers Automobile repair scams Home Computers - Correct answer Many computer repair agencies are legitimate, others are not Low-ball technique: "free diagnosis" - once they have it apart, they literally can tell you anything is wrong and charge you to fix a computer that wasn't broken Automobile Repair Scams - Correct answer Same game...different product Find a reputable, certified mechanic Credit Card "Protection" Offers - Correct answer Another type of "protection" is one that pays off your balance in the event of your death - you are not liable after you are dead; your estate may be The worst offers involve "protecting" you if someone steals your card or card number Complexity of goods Time costs are great Consumers have high expectations False sense of security Some information is useless or inaccurate Choice is overwhelming - Correct answer Deregulation has brought with it more choices as well as increased competition It is sign of a healthy economy to have a larger number of products and services, but this diversity many create confusion for consumers Examples: telephone service, airline tickets Complexity of Goods - Correct answer Assessment becomes difficult New technology is more complex therefore assessment is more complex and the information is either more complex or not available Time Costs are Significant - Correct answer It takes time to find information That time has to come from somewhere - what are you going to give up doing so that you can gather information? Consumer Expectations - Correct answer Increased levels of education translate into consumers who demand more information and accurate information False Sense of Security - Correct answer Consumers assume that they are protected in the marketplace and do not practice Caveat Emptor "let the buyer beware" Useless Information - Correct answer Information that provides nothing useful to the consumer Inaccurate Information - Correct answer Sometimes information that is given may be inaccurate It is then up to the consumer to be wary and judge whether the information is correct Consumer Information should be Objective - Correct answer Non-biased, source of information is not making a profit Consumer reports is a good source of objective information because they do not accept advertisements Consumer information should be Valid - Correct answer Information comes from reliable sources Credible research has been done Information could be proven to be correct Consumer Information should be Understandable - Correct answer If seller desires to provide the consumer with information, the information should be written so that a consumer can understand what the words mean No double-speak nor too technical Again, typically should be written at a 6th grade reading level Consumer Information should be Complete - Correct answer Incomplete info may actually mislead the consumer Stating only the good points about a product and leaving out the problems gives consumers the impression that the product is without flaws Consumer Information should be Up-to-Date - Correct answer Information about a product should be relevant for NOW Consumer reports sometimes reports information on a model that has been discontinued, hence, information may not be relevant anymore Benefits of Information Search - Correct answer Lower tag price Lower full price or consumer cost Satisfaction from shopping Costs of Information Search - Correct answer Time Costs Cost of gasoline or public transportation Cost of obtaining information Emotional costs When should you search for more information - Correct answer Expensive product Something you will have a long time When there is large price dispersion in the market When there is large variation in quality Information Search Rule - Correct answer Consumers will search as long as the cost of the search is less than the expected savings from the search CS < ES Rules of Thumb used instead of searching for information - Correct answer Using seals of approval Buying top-of-the-line merchandise Buying high-priced goods Buying brand names Buying the larger size because think it has a lower unit price Searching for Information - Correct answer Information makes choice meaningful; Consumers cannot make wise decisions about goods and services unless they have adequate information Types of Goods - Correct answer Search: consumer can gather relevant and pertinent information before purchase Experience: consumer obtains the relevant information after purchase Credence: consumer never obtains relevant information Search Goods - Correct answer A product r service with features and characteristics easily evaluated before purchase Most goods fall into the search category - Correct answer Examples: appliances automobiles clothing furniture Experience Goods - Correct answer Two examples are the categories of food and entertainment - with food you need to taste - with entertainment you can't preview the entire event Credence Goods - Correct answer A term used in economics for a good whose utility impact is difficult or impossible for the consumer to ascertain Typical consumer does not have the expertise to evaluate information with certain complex goods or services Examples: Prescription and over-the-counter drugs, legal services, mechanic services Information and Types of Goods - Correct answer Search: stores will cluster to lower consumers' information search costs Experience: cents off coupons, taste tests and previews are intended to lower search costs Credence: the government helps consumers by policing credence goods more than others - licensing of service providers, drug regulation Passive Information - Correct answer Encountered when one is doing something else - Banner ads - Billboards - Ads on bathroom doors Actively Acquired Information - Correct answer Information sought for its own sake: - test driving a car - internet search - reading literature - asking friends Evaluating Alternatives - Correct answer Based on information search, the person weighs alternatives Subculture Products - Correct answer Think of products that might be specific for one sub population but not necessarily for another - cosmetics Family Characteristics affecting Consumer Behavior - Correct answer Heterosexual families Gay/lesbian families - "Heather has two mommies" book launched a minor industry in providing books for the children of gay and lesbian parents Products for Gay/Lesbian Population - Correct answer In 1998, Surrey, BC Kindergarten teacher James Chamberlain attempted to read the storybooks "Ash’s Mums" and "One Dad, Two Dads, Brown Dad, Blue Dads" to his class The Surrey Board of Education banned the books citing grammatical failings as the reason The Surrey BOE pursued the ban all the way up to the Supreme Court of Canada where they lost their case Surrey School Board financially liable for all court costs, which totaled $1.2 million dollars Uncle Tom's Cabin - Correct answer Harriet Beecher Stowe was also banned in the south and continues to be in some areas, for example Illinois Elements of a Marketing Strategy - Correct answer Blending the four strategy elements of marketing decision-making to satisfy chosen target markets - product - price - distribution - promotion Product Strategy - Correct answer What goods or services to offer Customer service Package design Brand names Warranties Product life cycle Positioning Pricing Strategy - Correct answer Deals with the methods of setting profitable and justifiable prices Goal is to get to ? price? - we discussed this price early in the semester - starts w "e" - equilibrium Distribution Strategy - Correct answer Planning that ensures that consumers find their products in the proper quantities at the right times and places - modes of transportation - warehousing - inventory control - order processing Promotional Strategy - Correct answer Blending together the various elements of promotion to communicate most effectively with the target market Informing, persuading, and influencing a consumer's purchase decision Companies and Competition - Correct answer Companies respond to competition by - Reducing prices - Increasing advertising - Introducing a new or improved product - Buying out the competition - Trying to inspire brand loyalty Brand Perception and Image - Correct answer "An image of a product, person, brand, or place is formed when the people develop beliefs, ideas, perceptions, or impressions about a product, place, or person" (Deplanes, Goldsmith, and Bonn, 2002) Brand image refers to the set of perceptions that consumers have formed about a brand Casey Study: Harley Davidson - Correct answer Building Success - understanding the customers' emotions and motivation - determining the factors of loyalty - translating this information to effective advertising Measuring Success - currently 22% of all US bike sales - demand above supply - sales doubled in the past 5 years with earnings tripled Brands, Counterfeiting, and Pirating - Correct answer Brand names can be protected by law with a trademark Counterfeiting occurs with a replica of a product Pirating occurs when an original idea or product is stolen and sold Buying Process, Brands, and Product Development - Correct answer Population trends? Why/how do population trends impact consumer buying process? How do Brands? How do products? Think about Florida... elderly people retire there... what products would you target to meet their needs? Population Trends - Correct answer Some states are growing in population more than other states - Iowa is NOT growing; Georgia is Much of the future growth in the US will come from immigration The average age of the population is increasing There is increased diversity in the population Households are all persons who occupy a housing unit; Households go through life cycle stages A marketing segment is a portion of a larger market whose needs differ from the larger market New Product Development - Correct answer Development of original products, product improvements, product modifications, and new brands through the firm's own Research and Development efforts Product Development and External Satisfaction Effects - Correct answer Bandwagon Veblen Snob Bandwagon Effect - Correct answer Consumer gets satisfaction from being like others in his/her reference group Veblen Effect - Correct answer Consumer gets satisfaction from showing others that he/she has a lot of money (even if they don't have it) AKA conspicuous consumption Snob Effect - Correct answer Consumer gets satisfaction from having something that no one else has Consumer wants to be unique New Product Development Strategy - Correct answer New products can be obtained via acquisition or development New products suffer from high failure rates Several reasons account for failure Can you think of reasons? Notes deviate from Text - Correct answer In order to be more precise in considering how a product becomes a product and how that product lives or dies in the market - use the following slides New Production Development Strategy: Stage 1 - Correct answer Idea Generation Internal idea sources - research and development department within the company External idea sources - from customers, competitors, distributors, and suppliers Consumer Decision Making and the Influence of Advertising - Correct answer Our goal as consumers is to make the best decisions possible so that we maximize our utility/satisfaction We want to make the best economic decisions based on our current state of constraints - constraints might include money, time, age, location, health, access to resources Decision Making and Time - Correct answer Time cannot be created, we cannot "make time" Time cannot be stored, we cannot "save time" All we can do is spend it How we choose to spend it should represent what matters to us in life Time - Correct answer Time itself is not a human resource, it a nonhuman/natural resource like air, water, soil Thoughtful Time Management Questions - Correct answer What is the best use of my time RIGHT NOW? - well if you are reading this then you are using time to invest in your human capital; you are wanting to secure a good grade in this class What can you do with the time you are given at this moment? - many things, go skydiving, jump in a swimming pool, write the next best novel, fall in love, binge watch TV Classrooms and Time - Correct answer We try to multi-task to make the best use of our time - the problem with trying to do too much multi-tasking is that some of the tasks you are attempting become compromised and you will do less well in your efforts - for example, research has shown that being on your phone or laptop during class earns you a 15% reduction in your grades; and a 20% reduction in your classmates grades because you are distracting them Parkinson's Law - Correct answer Beware with regards to time - A job expands to fill the time available to accomplish the task, such as finding and purchasing a product - This is why people spend all day shopping and buy the same thing they could have over their lunch hour Studying and Homework - Correct answer Students tend to wait until the last few hours to cram when studying for exams; this process is problematic; in that, if you allocate 7 hours to studying for your FHCE exam you will likely use the whole 7 hours but they won't be good hours - you will allocate the 7 hours but truly the first sold effort-filled 20% of that study time will get you the better grade. you will likely waste 80% of the time you are allocating to distractions - it is better to allocate a small amount of time each day to learning the material instead of cramming Pareto Principle - Correct answer 80-20 rule 20 percent of the time expended produces 80 percent of the results; 80 percent of time expended results in only 20 percent of the outcomes - we waste a lot of time Pareto and Studying - Correct answer If you are studying and allocating a vast amount of time to cram before exams, you are doing it wrong! 20% of good studying time will earn you 80% of what you seek the other 80% of your studying time is just wasted with distractions A time saver: Rules of Thumb - Correct answer As consumer we can reduce the amount of time we spend making decisions by using "rules of thumb" Principles that guide purchases such as only buying certain brands or only shopping at certain stores or buying certain styles - seals of approval - trademarks (IE brands) Rule of thumb: Price - Correct answer Price along with our income and our preferences determine our consumption choice Most consumers try to stay within their budget constraints How do economists quantify, look at, and understand you consumer decisions when they take your income, your budget constraint, your preferences, your choices into consideration? - Correct answer Through graphs Consumer choices (indifference curves) without constraints: in that the consumer has an infinite amount of food and clothing from which to choose - Correct answer An indifference curve is a diagram depicting equal levels of satisfaction for a consumer faced with choices of bundles of goods - extending curves = increased quantity - the indifference curves indicate different combinations of the two purchase choice - as consumers we want to be on the indifference curve that is farthest away from the point of origin as possible because that means more quantity of goods Indifference curves - Correct answer - good A and good B, bacon and eggs, shoes and socks, cars and trucks - each black dot is indicative of a different combination of the goods listed Indifference Curve = Bundle choice preferences - Correct answer But what about our financial limitations? An individual should choose to consume goods at the point where the most preferred available indifference curve is tangent (touches) to their budget constraint That is, the indifference curve tangent to the budget constraint represents the maximum utility obtained utilizing the entire budget of the consumer Graphically - Correct answer We are combining two graphs.. Your indifference curve graph indicating your bundle/choice preferences; in that, given the choice of the two goods on the graph what combinations would you pick + your budget constraint graph; most of us are limited by our dollars available for consumption when we make purchases. from grocery stores to athletic stores to restaurants, we are generally constrained by how much money we have to spend Budget Constraint - Correct answer The quantity of goods that you can buy, given: - set prices - limited income (you can change this over time) It shows all possible combinations of Good 1 and Good 2 the consumer can buy when spending all of her income Budget Constraint Graph - Correct answer Price of good 1 X quantity of good 1 + Price of good 2 X quantity of good 2 = M (budget, money available to spend) - intercepts are where the line touches the end of the graph The $200 - Correct answer Is the most I can spend on athletic attire Anywhere on the budget constraint like are my combination choices - maybe I buy fewer running shorts and more shoes - maybe I spend no money on shoes and all on shorts - maybe I spend all the money on shoes The Problem with the Grey Dot (Not Affordable Dot) - Correct answer Too many consumers do consume at the grey dot How do they do that if they are constrained by their budget? - they ignore their budget and put the consumption on credit cards - bad idea especially if you cannot pay the full balance off each month; carrying the balance over means your budget for the next month is smaller since some money has to go to repay that debt on your card So where do indifference curves come in? - Correct answer They, as you recall, are indicative of what we would prefer to buy if money were no object Calculating the Budget Line - Correct answer Y = Price of 1 X quantity of 1 + Price of 2 X quantity of 2 - logically and mathematically this makes sense. what you can purchase at the store is a function of how much you have to spend, the cost of one good and how much of that good you want to buy, the cost and quantity of the other good(s) you want to buy - the budget like says the quantity of clothing (C) you can purchase is dependent upon the price of clothing, the price of food, the quantity of food you need to buy, and how much money you have to spend Budget Graph Summarized - Correct answer The Constant is the Y-intercept Slope is - opportunity cost of food K-fed advertised for nationwide insurance with the slogan "life comes at you fast" Advertising is used by - Correct answer Business firms Nonprofit organizations Professionals Social agencies Government Types of Advertising: FTC classified - Correct answer Informative ads Puffing ads Deceptive ads Comparative Defensive Informative Ads - Correct answer Also called Pioneer Advertising Provides the consumer with specific, understandable, verifiable claims Research Indicates... - Correct answer Informative advertising reduces the consumers' uncertainty about the attributes of the promoted product. This, if the consumers are risk- averse, then their tendency to purchase a product increases with the number of ads they were exposed to - by Dmitri Byzalov (Harvard) and Ron Sahara Advertising Effects - Correct answer An increase in exposure to advertising, ads to an increase in the expected utility The effect of the expected utility depends on the importance of the product attributes for the consumer, the familiarity of the consumer with the product, and the personal risk parameter Puffing Ads - Correct answer Ads that do not give any relevant information but also do not mislead the consumer Deceptive Ads - Correct answer Tendency to deceive Impression that the ad is truthful when it isn't Omission of Important Information - Promise Ultra Margarine advertised they were fat FREE when they were just LOW fat Bait and Switch - Correct answer The bait: an unrealistically low price for a product The switch: to a much higher priced model of the same product Comparative Ads - Correct answer Companies used to hesitate to do this but now they do it freely Sometimes it can backfire and cause the viewer to not want to buy the product -- if the comparison is too harsh (political advertising) Defensive Ads - Correct answer In a market that is saturated with a certain product, everyone selling that product has to advertise or be left out of the market. You don't gain anything necessarily by advertising but at least you are still in the game. Setting Advertising Objectives - Correct answer An advertising objective is a specific communication task to be accomplished with a specific target audience during a specific period of time Advertising Objectives are a Strategy Decision - Correct answer Every ad should have clearly defined objectives These objectives guide the people who create the ads Developing Advertising Strategy - Correct answer Consists of two major elements - creating advertising messages - selecting advertising media The Message Strategy - Correct answer Identify Customer Benefits Advertising Appeals should be: meaningful, believable, and distinctive Message Execution - Correct answer Choose a tome - Life insurance vs. Doritos Use memorable, attention-getting words - "snap, crackle, pop" Planning the Best Message - Correct answer A I D A A: attention I: interest D: desire A: action Selecting Advertising Media - Correct answer Reach - percentage of people exposed to ad Frequency - number of times a person is exposed to ad Media Impact - the qualitative value of a message exposure through a given medium Deciding on Media Timing - Correct answer Must decide how to schedule the advertising over the course of a year - follow seasonal pattern (hot dogs/grilling) - oppose seasonal pattern (advertise for winter cruises during the summer) - same coverage all year (life insurance because people die any time during the year) America' Top 5 Advertisers - Correct answer Proctor and Gamble Phillip Morris General Electric Time Warner Walt Disney The Disney Vault - Correct answer The term used by Walt Disney Studios Home Entertainment for its policy of putting home video releases of animated cartoons on moratorium Each Disney film is available for purchase for a limited time, after which it is put in the vault and not made available in stores for several years - Equals controlled release of Protection Federal Trade Commission's role in Advertising - Correct answer Can issue a consent decree Can ask for ad substantiation Can use a cease or desist order Can require a corrective ad Corrective Advertising - Correct answer AKA Counter advertising FTC requires company found liable for deceptive advertising to issue advertising anew that corrects the earlier misinformation FTC Concerns: Targeting Children - Correct answer Marketing to children because children do not have the cognitive ability to understand many advertisements The average man rule doesn't work