Consumer Protection & Business Classification in US Economy: Eras, Advocates, Laws - Prof., Study notes of Humanities

Download Consumer Protection & Business Classification in US Economy: Eras, Advocates, Laws - Prof. and more Study notes Humanities in PDF only on Docsity! FINAL REVIEW! FCS 1341 CONSUMERS IN THE MARKETPLACE ECONOMIC SYSTEMS • What is the basic purpose of any economic system? • The purpose of the economy is to provide these goods and service (food shelter, clothing, and material goods) • What are the three questions any economic system must answer? • what should you produce? • how much do you need to produce? • Amount of people. for whom do you need to produce? Child, man, woman. • What three entities that can answer the above questions? In the United States, who answers the three questions? • government • business • Consumers • What is the difference between an economic system that is classified as a “Market System” vs. a systems classified as “Central Planning”? How is the U.S. classified? • Market system (PURE): consumer makes the decisions (what, how, whom). Consumer is sovereign and rules without interference • Central planning: government answers questions independently consumers and businesses have absolutely no say • U.S. is in the middle of market and central planning systems • What does Consumer Sovereignty mean? • The consumer is king--literally' the idea that satisfying the consumers need is the only important function of an economy • What are the 4 possible categories that businesses (in the U.S.) could be classified in? What are the characteristics of each category (how do they differ)? Does competition differ depending on the category (how)? How are U.S. businesses/producers distributed among the categories? Be able to complete/explain the following chart: Market Type Number of producers Type of Product Entry Condition Price Comparison Pure Monopoly(illegal ) One Unique Impossible 1 Oligopoly 2-4 Differentiated Difficult 2 Monopolistic/ Many Differentiated Easy 3 Competitive Pure Competition Many Standard Very easy 4 • How does competition affect the price of a product? • Higher price, less competition CONSUMER MOVEMENT • For each of the 3 major Consumer Eras: What were the major safety issues? Identify the President and/or Consumer Advocates and/or the media that influenced the era Identify consumer legislation passed during era How did the legislation emphasis change from Era 1 to Era 3 Know what caused the end to each era • ERA 1:1880-1917 • Sherman Anti-trust law made monopolies illegal. • Safety problems: food and drug industry. • Strong Consumer Advocates: Dr. Harvey Wiley & Upton Sinclair 'The Jungle' (Muckraker) • 1906 Meat Inspection Act: protection during processing • 1906 Food and Drug Act: protection during production, transportation and sale of foods, drugs, and medicine. • 1912 Better Business Bureau: promote good business standards. • 1913 Federal Trade Commission Act (FTC): established to ensure competition in the marketplace. • END OF ERA:WWI followed by prosperity in 1920's. • ERA 2: 1929-1940 • 1929: Stock Market Crash • Consumer Advocates: F.J Schlink ’One Million Guinea Pigs’,’Consumers Research’(1929), Colton Warne co- founder of ’Consumers Union(1936) • U.S. President Roosevelt • Safety Issues: Elixir Sulfanilamide, cosmetic scandal • Legislation: 1938 Food, Drug & Cosmetic Act *safe and effective* • END OF ERA: WWII • ERA 3:1950's-1980 • Safety Issues: cranberry scare!, Thalidomide scandal. • complexity of marketplace (new problems): number of products available*variety*, Impersonal, repairing products, consumers felt helpless • Consumer Advocates: Vance Packard ’The Hidden Persuaders’, Ralph Nader ’Unsafe at any Speed’, Senators (Douglas, Hart, etc.) • U.S. Presidents; President Kennedy-consumer rights, product or service advertised and recommends a higher- priced product or service(SWITCH)--illegal • What is “puffery”? Legal or illegal? • A claim that is obviously false but is used anyway.--legal • Which federal agency has control over advertising? What power do they have? Are ads reviewed/checked prior to being released? Do they control the price of the advertisings? • Federal Trade Commission • To prevent business practices that are anti competitive or deceptive or unfair to consumers and to enhance informed consumer choice in public understanding of the competitive process. To protect consumers, maintain competition and advance performance • Yes • What is corrective advertising? How successful has it been? • Messages that a businesses order to run in consumer ads by Federal Trade Commission (FTC) in order to right an incorrect impression that’s its previous ads have given • What are celebrity endorsements/testimonials? Are they effective? What rules apply to celebrity endorsements/testimonials? • For of brand or advertising campaign that involves a well known person using their fame to help promote a product or service • Yes • Endorsements must reflect honest onions, findings, beliefs, or experience of the endorser. • What is the definition of a “deceptive ad”? • Any advertising that makes false claims or misleading statements as well as advertising that creates a false impression • What is the purpose of “marketing research” and “motivational research”? How are they similar and how are they different? • Marketing Research-research that gathers and analyzes information about the moving of good or services from producer to consumer • Motivational Research-the application of the knowledge and techniques of the social science especially psychology and sociology to understanding consumer attitudes and behavior • What is subliminal advertising? • Promotional advertising that the recipient is not aware of • Be able to compare Consumer Reports, Kiplinger’s Personal Finance Magazine, and Money in relation to. Purpose? Major Focus/emphasis? Target audience? • Consumer Reports • Test product and report results • Produce safety and efficiency • Middle age • Kiplinger's Personal Finance Magazine • Personal Finance • Personal Finance • Middle/Upper Middle income • Money • Management of Money • How to invest money • Higher income • Consumer Information Catalog: Who is publisher? Frequency? • Government • Twice a year FRAUD AND DECEPTION • What is the difference between fraud and deception? • Fraud: deception deceit and trickery. An intentional perversion of the truth. Can prove it was intentional • b. Deception: to deceive to delude or to cheat. • What is the difference between Caveat Emptor and Caveat Venditor? • Caveat Emptor: let the buyer beware of the market place • Caveat Venditor: let the seller beware of the market place • For the following frauds/deceptions, be able to: explain what/why it is a problem, identify which are illegal activities, what are potential warning signs, and rights/protection available to consumer as the result of legislation: • Price fixing: businesses get together and determine the price of the product • Health/Medical • Surgeries: unnecessary surgeries • 4 most uncommon • Tonsils • Appendix • Hysterectomies • Caesarean • Medical Practices • Health Claims • Beauty • "Perfect" Female • Skinny, clear skin, straight and white teeth, tall, long hair, clean hair, hourglass shape, big eyes and lips, tan • "Perfect" Male • Channing Tatum, Tall, fit, good skin, full head of hair, well groomed, smile, eyes. • Role of the FDA • Before sold had to be proven safe and effective • Overseas the labeling and safety to the degree if they cause problems to take it off the market • Examples • Weight loss plans • Not very effective • FTC estimates that at least one statement in the ad is deceptive or misleading • Diet ads generate $59 billion in sales (2009) • Red Flags in Diet Ads • Testimonials • Before and After Photos • Rapid Weight loss claims • No diet or exercise required • Clinically proven/doctor approved claims • Natural/safe weight loss claims • Tanning options • 30 million Americans that paid money to get tan (2010) • 1 in 3 females go to tanning salon • Most states do not let minors tan under 18 w/o permission • Texas Law (January 1, 2010) • Have to have parental permission under 18 • Under 16.5 cannot use tanning bed • Anti-aging products • 25-30% of pop has used products to make people look younger • Cosmetic surgeries • 13.1 million (2010) • 77% increase (2000-2010) • Most frequent procedures • Women • Boob job(not covered by insurance) • Botox • Men • Liposuction • Botox • Automobile: buying and repairing • Buying • Used • Odometer tampering • Odometer is not correct • 1 in 4 cars • New • High Balling* • Offer an unusually high trade in value • Low Balling* • Hooked with low price and then something raises the price • Bushing • Order car • Packing • Double-dipping • Incentives • Sweepstakes/Lotteries • Pyramid sales • The granting on condition that an investment be made, of a license or right to recruit for additional investment • Gas • Clothes/Shoes • Entertainment • What is an effective way to determine how much money to allocate each month to “irregular” expenditures? • Irregular expenditures on annual basis. • What is the purpose of record keeping? Why is record keeping important for good financial planning/money management? What should one “do” to ensure their record keeping will be effective? • Balance expenditures with income, check to see if plan has a reasonable chance of success. INFLATION • Define Inflation • Too much money chasing too few goods • During inflation, what is happening to the value of the dollar (purchasing power)? • What are the three “tools” available to government to control inflation? Be able to explain how each should be used during inflation. How should the tools be used in a recession? • Wage and price controls • Government can regulate wages, prices, and profit • Fiscal policy • How much spends and gets back • Monetary policy • Federal reserve board can control money • Which government agency is responsible for Monetary Policy? • The Federal Reserve • Be able to recognize steps/techniques to reduce inflation . • Cut down the demand on reducing money supply • What is the Consumer Price Index? What does it measure? Who is responsible for calculating and publishing the Consumer Price Index? How often is it published? • Consumer Price Index- survey of product prices in the marketplace. • Market basket of goods-typical buys of consumers. • Government run. • Published monthly. *3 week lag time • Be able to interpret the Consumer Price Index (what it means to consumers in terms of costs/dollars). What is the base year? Why is the base year important? Examples: • September 2011=2011 226.89 • (1982-84 = 100) • Purchasing power of dollar = .42 (1982-84 = 100) • September 2011 = 2011 679.65 1) (1967 = 100) • Purchasing power of dollar = .15 (1967 = 100) • Base year is the year and amount of money worth during that time. This is then compared to a new year’s amount. • Why may individuals be underinsured as the result of inflation? • What do consumers need to be aware of concerning their savings/investments during periods of high inflation? • During a time period of inflation, what does the government want consumers to do concerning • Saving money: save more money or save less? • SAVE MORE • Using Credit: use credit more or use credit less? • USE LESS CREDIT • During a time period of inflation, what should consumers do concerning • Saving money: save more money or save less? • SAVE LESS • Using Credit: use credit more or use credit less? • USE MORE CREDIT CREDIT • What is the difference between credit and debt? • Credit cards- buy now, pay later. • Definition: purchasing power extended to consumers by lending agencies and it is repaid out of future wages and salaries. • Debit cards- buy now, pay now. • Definition: accept purchasing power, you get debt, when we use credit the result is debt. • What are some of the advantages/disadvantages of using credit? • Advantages- need it now, emergencies, easy and safe, helps you build credit rating, save money because you got it at the lower price today. • Disadvantages- Debt, overspending (what you don’t have), could get bad credit if you don’t pay the bill by the time its due. • Be able to name and explain/describe the 3 C’s of credit. Be able to identify/recognize examples of each of the 3 C’s of credit. • Collateral: something of value; idea is to keep collateral if you don’t pay. (ie. Jewelry, cars, homes, mortgage, land, assets, investments. • Character: Judge character on credit score, number of jobs (stability?), how long you’ve lived at residence, homeowner or renter? ****MOST IMPORTANT**** • Capacity to repay: reliability of income, security of job, how many people do you support on that income, safe debt limit (20% income exclusive mortgage, not cars or credit cards)- percent of debt reaction. • What is considered to be a safe debt load for a consumer? • A safe debt load is one that you can pay off comfortably. • Describe the purpose of a credit bureau and what type of information is contained in credit files? Why is it important for a consumer to periodically check their credit files? • An agency which collects and sells information about the creditworthiness of individuals. A credit reporting agency does not make any decisions about whether a specific person should be extended credit or not. However, it does collect information that it considers relevant to a person's credit habits and history, and uses this information to assign a credit score to indicate how creditworthy a person is. When a prospective creditor approaches a credit reporting agency to inquire about a particular person, they are sold a credit report which contains all the information relevant to the person and the credit score calculated by the agency (some creditors might have an ongoing subscription to credit bureau). The prospective creditor then uses that information to decide whether to extend the applicant the desired credit or not. • Files contain history of your credit use. • The only people who have a right to see your credit history are the people who are granting credit. • What does one’s credit score (example: FICO) indicate? Why is it important? How does having a high vs low credit score effect consumers? Give examples of what one’s credit score might be used for. • Your credit score is a measure of your past ability to make payments on time and manage your credit. It’s designed to help lenders determine how likely you are to pay back your loan. The number is calculated using a formula created by Fair Isaac Corporation, which is why it’s also referred to as your FICO score. According to Fair Isaac, the median FICO credit score in the U.S. is about 720. • 620 is the dividing line between good and bad credit. The average credit score is 693. 720+ is the most favorable credit score. Scores range from 300-850. • Ways to keep your credit score high: • -Pay Bills On Time • -Keep Balances Low on Credit Cards • -Apply for new Credit only as needed • -Make Sure Credit Report is Accurate • -Do Not Close Out Old Accounts • What are the best sources/worst sources of borrowing cash (based on APR)? • What is a “discount loan” and why is it good (or bad)? How does it affect the “stated” rate of interest for a loan? • A discount loan is a loan that does not require the payment of additional charges, whether or not the note is secure (and what is the collateral), number of payments, total cost of the loan, etc. (same idea as class activity on 4/3 ) • In a credit contract for credit cards, be able to find the APR, Finance Charge (method of calculating finance charge for credit cards), minimum finance charge, etc. (same idea as class activity on 4/3 ) FOOD SHOPPING • What is average percent consumers spend on food? Is that consistent with all income levels (lower income level vs. higher income level)? • List ways to reduce impulse buying. • Re-evaluate the cost of convenience foods *time and money* • Determine the unit price • Read the labels *percentage labeling* • Shop the store with the lowest prices • Consider store brands to replace national brands • Check the date on the product *opening date* • Examine the “gimmicks” offered by the store *non-price competition* • Use coupons if they save you money • Think twice before buying higher price natural or organic and/or diet foods. • Watch the Universal Product Code at check out. • What is the relationship between convenience foods, time and money? • Convenience foods are usually unhealthy and cheaper because they’re convenient and take less time to cook, heat up in the microwave or to eat. • What does unit pricing mean? Be able to calculate the unit price of an item (best buy given several choices). • Identification of the retail price per unit of related products, allowing for easier price comparisons between products in different places. • How are ingredients listed on labels? Why should consumers read the labels? • Ingredients are listed by the weight. Therefore, the more there is of one product will be listed first. Products might not be what they say or seem to be. • Generally, how do the prices of store brand and national brands compare to each other? What about the quality of the two? • Why is it important to check the date on food products? Is “open- dating” on food required by law? What are the types of dates that may be represented on food products? • What is non-price competition? Be able to recognize non-price competition examples. • Analyze when using coupons would be beneficial and when they would not be effective to use. • What is the difference between a “natural” food and an “organic” food? Why do they generally cost more than “regular” food? • What is the Universal Product Code? How can it affect the cost of food? Transportation (Buying a Car) • Why is it recommended to buy a used car rather than a new car? What is the recommendation of buying a used car vs. a new car? • You can get the same quality car for a cheaper price. • Buy 2 year old car, drive for 2 years and sell after 4 years. The car maintenance will have increased by the 4th year. • Name some resources available to consumers to help determine the dealer’s cost of an automobile and/or sources of pre-purchase information. What would you consider to be the top 2 sources of information to help a consumer in buying a new car? • Consumer Reports and Internet. • What are the 5 points to consider in buying a new car? Be able to explain. • Compare similar cars made by same company • True cost of ownership • Dependability/Reliability • Re-sale value • Negotiating the price of the car (how to bargain) • When are good times to shop for a new car? • When inventories are high or sells slow • End of the season • End of the month • Which is better to know: Dealer’s Cost or Invoice Cost? Why? • Invoice Cost- it’s the price the car actually costs • How does the down payment, APR, and length of financing affect the total price of a car? If I wanted to save money on financing, what should I do concerning these 3 factors? • Number of attempts have been made to repair a defects that significantly impairs it use, value, or safety, and that continues to have this defect • Delineation of a warranty rights period in which the defect must occur • Serious safety defect • What are the major points taken into consideration under Texas Lemon Law to determine whether or not a car is a “lemon”?