FHCE 3200 Exam 3 fully solved & updated

Economics - answer-The study or science of production, distribution, and consumption The study of how society manages its scarce resources Society and Scarce Resources - answer-The management of society's resources is important because resources are scarce Scarcity implies choice and choice implies cost Scarcity - answer-Means that society has limited resources and therefore cannot produce all the goods and services people wish to have Why study consumer economics? - answer-To apply course knowledge to personal decisions To overcome passivity - to understand and "own" your place in the economy To become a Consumer Protection Advocate - Standing up for consumer rights - One person can make a difference -- Ralph nader, clark Howard, you Ralph Nader - answer-He suggests that Amazon is at a point where it should be issuing dividends back to its shareholders since its wealth/value has increased substantially over the past few years Clark Howard - answer- Consumers - answer-Individuals and groups who obtain, use, maintain, and dispose of goods and services to fulfill needs and increase satisfaction Goods - answer-Tangible Objects Services - answer-Intangible actions or work done Satisfaction - answer-Also known as "utility" Consumers... - answer-Obtain, use, maintain, and dispose of... - obtain ... - use .... - maintain ... - dispose of ... The Road to Consumer Economics - answer-Adam Smith (1776): Author of "An Inquiry into the Nature and Causes of the Wealth of Nations stated that: "Consumers act in their own self interest and markets work with the invisible hand" - The founder of modern economics - Felt consumers should be given the freedom and authority to run their own economic affairs - The US's founding fathers liked the idea that wealth should be based on goods and service slouched and consumed by consumers Capitalisn - answer-A social system based on the recognition of individual rights Under capitalism the state is separated from church/religion Being able to freely choose among a vast array of commodities gives people a sense of freedom Consumerism - answer-The belied that goods give meaning to individuals and their roles in society How much does this belief drive our consumption habits? Do you buy goods because you care about what others think about your good? Who only shops at name brand stores? Who shops at Walmart? Who shops at Goodwill? Goods and Services - answer-Buying goods and services is an act of trust because we assume our purchases will increase our satisfaction Consumption may not always bring satisfaction - unsatisfactory products - injurious consumption - consumer fraud Goods and Services to meet Human Needs - answer-Needs: he barest minimum physical necessities that allow you to survive Maslows Hierarchy of Needs - answer- Wants - answer-What people would acquire if their resources were unlimited Resources - answer-Things used to produce other things to satisfy people's needs and wants Provide the means to satisfy the family system's demands Material Resources - Non-human Human Resources = personal characteristics Scarcity - answer-Not enough resources are available to satisfy one's needs and wants and choices have to be made about their use The Consumption Process - answer-Because there are so many aspects of consumption it can be thought of as a process Awareness Thinking Planning Implementing Evaluating Awareness - answer-A "stimulus" lets us know that something is needed or desired A broken computer makes us aware another one is needed Thinking - answer-The mental exploration of the possibilities: weighing pros and cons and gathering information about the product in question Random set of thoughts Planning - answer-Deciding "ordered steps of action" needed to make the purchase a reality - Planning on taking $50 from each pay check to pay for it Implementing - answer-You actually sit down at the computer and serf the web for the best price for the product You go to the store to price the product You really go and make the purchase You actively put the $50 into the bank each paycheck Evaluating - answer-Spend time reflecting on your outcome Is the product in OK condition? Did you achieve some level of satisfaction with your purchase? Was it the right choice? Factors that Influence Consumers - answer-Economics History Consumer Culture Individual Traits Physiological needs Desire for Technology Political area Economics - answer-The condition of national and worldwide economics during times of decision making - the unemployment rate - interest rates - inflation rates History - answer-The background history of each person influences his or her decisions. This includes our own personal histories and also the histories of our families The history of the area in which the person resides influences consumer decision making as well Consumer Culture - answer-Generally refers to patterns of human activity and the symbolic structures that give such activity significance It is the way people live in accordance to beliefs, language, history, or the way they dress Culture includes the groups in which an individual or family resides and their behaviors or traditions Individual Traditions - answer-Age Eye Color Hair color/type Weight Height Physiological Needs - answer-Thirst Hunger Safety Housing Protection Desire for Technology - answer-Technology includes the methods and material that individual use to get what they way Including machines, techniques, material objects, and processes Political Area - answer-Politics affect our economic decision making Policies impact our consumption (we have to buy auto insurance if we are going to drive on public highways and now we must buy health insurance) Medical Marijuana (people migrate to legal states for it) Economics and the Business Cycle - answer-Economics: the study of production, distribution, and consumption The study of how societies use scarce resources to produce valuable commodities and distribute them among different people The Business Cycle - answer-Refers to the periodic fluctuations of economic activity - Expansion: prosperity, growth, high output, low unemployment, increase sales, and housing starts - Recession: downward turn in economy, decline in output, employment, income, consumer confidence declines - Recovery: when economic activity begins to pick up after a recession, spending increases, employment picks up Expansion - answer-Prosperity, growth, high output, low unemployment, increased retail sales and housing Unemployment - answer-The government conducts a monthly sample survey called the Current Population Survey to measure the extent of unemployment in the country Persons are classified as unemployed if they do not have a job, have actively looked for work in the prior 4 weeks, and are currently available for work Unemployment Rate April 2018 - answer-3.9% To be counted as "marginally attached to the labor force"... - answer-Individuals must indicate that they currently want a job, have looked for work in the last 12 months, and are available for work Are they employed? no Are they counted as unemployed? no The REAL Unemployment Rate - answer-The real unemployment rate is likely higher than the quoted unemployment rate; the statistic is skewed to look better The rate is reported the way it is because to tell the truth about the actual number of Americans out of work--who want to work would not make our economy look like it is doing as well as we say it is doing - This is problematic for countries who want to invest in our country/companies...if the US doesn't look healthy the dollars wouldn't flow in - Problematic for our own citizens...if the economy looks less than healthy, we might not shop, or invest in companies, or spend money which the economy needs to have us do to grow Recession - answer-Temporary moderate decline or downturn in economy, declining output, income, employment, and trade - Usually 6 months to one year - Deep recession is called a Depression How long was the Great Recession? - answer-According to the US National Bureau of Economic Research (the official arbiter of US recessions), the recession began in December 2007 and ended in June 2009 and thus extended over 18 months - It wasn't called a depression because the thought of ANOTHER Great Depression in the US was terrifying Recovery - answer-When economic activity picks up, leading to expansion Production on the rise, spending on the rise, unemployment declines, consumer confidence rises Real Gross Domestic Product - answer-A measure of the value of all goods and services newly produced in a country during some period of time, usually one year or one quarter; adjusted for inflation Inflation - answer-The steady increase of prices - Makes the purchasing power of your dollar smaller - "A dollar just don't buy what it used to" - Bad for elder individuals who are on a fixed income. They are not generation new earned dollars to offset the loss in buying power of their current saved dollars Deflation - answer-Indicates falling prices - Good for consumers because stuff is cheaper - Bad for businesses because if the price decreases, then profits likely decrease, and the money they intended to reinvest in the business or wages is also decreased Supply, Demand, Equilibrium price and Demographics - answer-After 9/11 there was a huge American flag shortage.. why? - Demand increased -- as a result the available supply could not keep up with the unexpected and increased demand - Demand increase lead to a price increase Supply - answer-A fundamental economic concept that describes the total amount of a specific good or service that is available to consumers - Irish Potato Famine () Law of Supply (Goldsmith) - answer-As the overall available "supply" of a good or service goes up (increases); generally the price comes down (decreases) As the pool of available workers increase, the wages offered decreases - This matters to you during high unemployment!! Your Competition - answer-Where a normal starting salary is $75,000 for a position, the boss can now offer $65,000 because there is an abundance of people who will take the job at that lower wage Goodbye AAA Shuttle - answer-AAA Airport Express (used to be the service in Athens) was the ONLY shuttle between Athens and HJ Airport $49 each way round trip Groome Transportation came in, undercut the prices and finally bought them out Quantity Supplied - answer-Refers to the amount of a certain product producers are able/willing to offer for sale at each possible price Mens movement along a supply curve due to a change in price Price changes affect the quantity supplied, but do not impact the overall supply Law of Supply (Miller) - answer-An economic rule stating that the price and quantity supplied move in the same direction As the price goes up for a good or service, producers of that good or service generally provide larger quantities, all other things being constant - How suppliers or producers react to price changes...not consumers Therefore... - answer-If the price of a product that producers are able to get consumers to pay increases, the quantity of that product that producers are willing to supply should also increase Coincidentally if the price that consumers are willing pay decreases, the quantity supplied by the supplied should decrease as well Supply Curve - answer- Why Supply Curve shifts? - answer-Prices of other goods - The supply of one good may decrease if the market price of another good increases, causing producers to reallocate resources to produce larger quantities of the more profitable food Prices of relevant inputs - If the cost of resources used to produce a good increases, sellers will be less inclined to supply the same quantity at a given price, and the supply curve will shift to the left Technology - Technolgoy dances that increase product efficiency;y shift the supply curve to the right Demand - answer-The term demand signifies the ability or the willingness of consumers to buy a particular commodity at a given point of time There is either demand for the good or there is not Law of Demand (Goldsmith) - answer-If nothing else changes, consumers will buy a greater quantity of a product at a lower price than at a higher price An economic rule stating that the quantity demanded and price move in opposite directions Quantity Demanded - answer-The amount of goods which would be demanded at a particular price The quantity demanded depends on the price of the good or service. The quantity demanded is determined at any given point along a demand curve in a price vs. quantity plane Demand Curve - answer- Therefore from a Consumer Perspective - answer-As the price of goods or services rises, the quantity demanded of those goods and services will fall; conversely, as the price falls--the quantity demand will rise - P increases = Q demanded decreases - P decreases = Q demanded increases Why Demand Curve Shift? - answer-Customer Preference - Some people just prefer flip flops to high heels; therefore they will increase their demand for flip flops and decrease demand for high heels Prices of Related Goods - Complements: an increase in the price of a complement reduces demand, shifting the demand curve to the left - Substitutes: an increase in the price of a substitute product increases demand, shifting the demand curve to the right Income - An increase in income shifts the demand curve of normal goods to the right Normal Good - answer-Any goods for which demand increases when income increases and falls when income decreases but price remains constant This term does not necessarily refer to the quality of the good Inferior Good - answer-A good that decrease sin demand when consumer income rises Giffen Good - answer-A special type of inferior good may exist known as the Giffen Good, which would disobey the "law of demand"; in that, when the price of a Giffen Good increases, the demand for that good increases This would have to be a good that is such a large proportion of a person or market's consumption that the income effect of a price increase would produce, effectively, more demand Income Effect - answer-Change in consumption based on change in real income Equilibrium Price - answer-A price at which the quantity of a good or service demanded is exactly equal to the quantity that is supplied - Changes in the market will change the equilibrium price Changes in the Market - answer-Increases in supply leads to price drop; Drop in price means consumers will demand a higher quantity of the lower priced good As demand for a good decrease - answer-The equilibrium price is now too high--consumers won't pay it. Seller must drop price to sell remaining supply Another factor of changes in the market - answer-Population changes Population movement Demographics and Consumption - answer-Population changes affect consumption patterns Baby Boomers now need rocking chairs Shadow Boomers are having midlife crises Generation X are consuming homes and furnishings Generation Y are living at home or in college Age Compressions - answer-When firms target adult-is products on little girls and tweens Consumer Sovereignty - answer-When consumers decide which goods will survive and to the idea that producers cannot dictate consumer tastes (Goldsmith) Consumers decide which goods survive in the marketplace When does Consumer Sovereignty exist? - answer-When there is perfect competition - many consumers - many producers and sellers - perfect information - easy entry and exit into the market - homogenous products Key to Consumer Sovereignty - answer-Rests largely on information Consumers with good information vote intelligently with their dollars Barriers to Information - answer-Ability to acquire information Ability to understand information - generally consumer information should be provided at a 6th grade level of education; as not everyone finishes high school Biased information Producer Sovereignty - answer-The concept where the producers have the power to decide which products and services society will produce and consume Government Sovereignty: Patient Protect and Affordable Care Act - answer-AKA: OBAMACARE The ACA was enacted with the goals of increasing the quality and affordability of health insurance, lowering the uninsured rate by expanding insurance coverage. It introduced a number of mechanisms--including mandates, subsidies, and insurance exchanges-meant to increase coverage and affordability Now being changed bu the government again once both changers of congress agree on the new law The Consumer Movement - answer-Adam Smith wrote Wealth of Nations in 1776. He said that consumers will make choices that give them the greatest amount of satisfaction. He was a proponent of the invisible hand (minimizing government intervention in the marketplace). The United States was founded on the free market system, however, by the late 19th century there were situations that led to the desire for consumer protection Rational Self Interest: Rational Choice Theory - answer-It is the dominant theoretical paradigm in Microeconomics It assumes that individuals choose the best action according to stable preference functions and constraints facing them Although rationality cannot be directly empirically tested, empirical tests can be conducted on some of the results derived from the models However... - answer-We know that not all consumption is rational - sometimes we consume because of status Conspicuous Consumption - answer-When a person pays an extremely high price for a product for its prestige value leading to a much higher demand than a simple price/demand relationship would justify Prestige - answer-A high standing achieved through success or influence of wealth Law of Demand - answer-If nothing else changes, consumers will buy a greater quantity of a product at a lower price than at a higher price A Monopoly - answer-Defined as a persistent market situation where there is only one provider of product or service, in other words a firm that has no competitors in its industry Do not protect consumers Take choice out of consumer's hands Do not have to provide good/safe/equitable products 1880s Monopolies - answer-Railroads (Pacific Railway Company) - Farmers being "railroaded" into using certain Ines Part of this was geography... you can't have a gazillion railroads cutting across the land so there were natural monopolies as a result Natural monopolies can arise in industries that require technology or similar factors to operate--such as railroad lines Telephones (Bell Telephone System began in 1877 later acquired by AT&T in 1899) - January 8, 1982. A Justine department mandate took the monopoly that was the Bell Telephone System and split it into entirely separate companies that would continue to provide telephone service - 21st Century: SBC purchased AT&T and is again becoming a monopoly in the communication business Monopolies Today - answer-Amazon Microsoft Googe Apple Mansanto Mylan Oligopolu - answer-A market structure with a small number of firms, none of which can keep the others from having significant influence The concentration ratio measures the market share of the largest firms Two or more firms The Consumer Movement Defined - answer-Policies aimed at regulating products, services, methods, and standards of manufacture, selling, advertising, in the interests of the buyer Consumer activity demanded safe, reasonably priced, and accurately labeled products, along with the right to complain and be satisfied with products Examples of at-risk consumers - answer-Elderly Youth Poor Rich How do we protect consumers? - answer-Through Consumer Policies - government sponsored policies Through Education - Education is a key tool to prevent consumer injury Background - answer-Primary goal of the movement is to advance efficiency and equity in the marketplace (Herrmann and Mayer) The Consumer Movement Contains: - answer-People who are motivated by economic issues and seek benefits for themselves - example: NRA People who are guided by moral concerns and pursue benefits for others - example: mothers against drunk drivers Consumer Movement is... - answer-Diverse in goals, levels of commitment, and social backgrounds if participants Exhibits diversity in leadership - Demographics - Preferred tactics and strategies - Ideology -- individual responsibility vs. protection - Anti-government vs. pro-government Ralph Nader - answer-Is an American political activist, author, lecturer, and attorney, noted for his involvement in consumer protection, environmentalism, and government reform causes - "Unsafe at Any Speed" -- detailing his claims of resistance by car manufacturers to the introduction of safety features Esther Peterson, Assistant Secretary of Labor - answer-Workers' rights Equal pay for equal work Truth in advertising Nutrition labels and "Sell before" labels for food products Labor organizer, labor education, labor lobbyist, government official Economic Regulations - answer-Regulate the price, entry, exit, and service of an industry Examples: gasoline, long distance telephone prices Social Regulations - answer-Address health, safety, employment fairness, environment quality, and other non-economic questions Examples: Job discrimination, clean water/air acts Two Specific At Risk Groups - answer-Women Children Why weren't/aren't men an at risk group? - answer-The US began as a patriarchal society Women's Movement - answer-1837: Young teacher Susan B. Anthony asked for equal pay for women teachers The first women's rights meeting in the United States, held at Seneca Falls, NY in 1848, itself followed several decades of a quietly egalitarian spirit among women Susan B. Anthony - answer-A prominent Americal Civil Rights leader who played a pivotal role in the 19th century Women's rights movement to introduce women's suffrage to US - Urged women to vote using the 14th Amendment as the foundation for that right Died in 1906 14th Amendment - answer-All persons born or naturalized in the United States, and not subject to the jurisdiction thereof, are citizens of the United States and of the sate wherein they reside. No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws Lucy Stone - answer-First woman in MA to achieve college degree, first woman to marry and keep her own last name Died in 1893 Elizabeth Cady - answer-When Elizabeth Cady married abolitionist Henry Brewster Stanton in 1840, she'd already observed enough about thee legal relationships between men and women to insist that the word obey be dropped from the ceremony Died in 1902 December 10, 1869 - answer-Wyoming territory passed a law permitting women to vote 1872 Republican Party Platform - answer-Made reference to Women's Suffrage November 1872 - answer-Anthony and others attempt to vote and get arrested August 26, 1920 - answer-The 19th Amendment to the US Constitution became law, and women could vote in the fall elections, including in the Presidential election First Woman to run for President - answer-182 Victoria Woodhull She became a colorful and notorious symbol for women's rights, free love, and labor reforms Equal Rights Amendment - answer-Equality of rights under the law shall not be denied or abridged by the US or any state on account of sex 1972 Children's Movement - answer-A historical and modern movement committed to the acknowledgement, and expansion of the rights of children around the world "A child is any human being below the age of 18 years, unless under the law applicable to the child, majority is attained earlier" Origin of the Children's movement in the US - answer-The children's rights movement was born in the 1800s with the Orphan Train. IN the big cities, when a child's parents died, the child frequently had to go to work to support him or herself. Boys generally became factory or coal workers, and girls became prostitutes or saloon girls, or else went to work in a sweat shop. All of these jobs paid only starvation wages. Child Coal Miners - answer-Little 9-12 year old boys worked and died in coal mines. Child Prostitutes - answer-Authenticated photo of Mary Rae Simpson in 1871 clearly about 4 months pregnant at age 11. Lived/worked in the Philadelphia area. Continued to work while pregnant. Sex Trafficking: Atlanta GA 2018 - answer-Over a million children, between the ages of 12 and 14, are sold into sex trafficking operations every year. Atlanta is the Sex Trafficking capital of the US. The GBI says Atlanta's popularity and easy access make it a prime location. The trafficker now targets children and promises a lavish lifestyle to lure them into business. One pimp the researchers spoke with in Atlanta made, on average, about $33,000 a week. According to the FBI, Atlanta ranks among the top 14 cities in the US for domestic minor sex trafficking. Some 300 girls across Atlanta re lured into sex trafficking every month. Why Does it Continue - answer-Supply Demand Distribution Child Labor Reform and the US Labor Movement - answer-1832 New England unions condemn child labor 1836 First state child labor law 1842 States being limiting children's work days (down to 10 hours only) 1881 Newly formed AFL supports state minimum age laws (14 years) 1906 - answer-Legislation set the maximum hours of labor for children to 55 a week and adopted a list of dangerous occupations prohibited to children under 16 1938 - answer-Federal regulation of child labor achieved in Fair Labor Standards Act Who is to blame? - answer-Massachusetts was first state to make children attend school Prior to that first mandatory policy attending school was optional depending on your parents' choice As minors bu law children do not have autonomy or the right to make decisions on their own for themselves. Instead their adult caregivers, including parents, social workers, teacher, youth workers and others, are vested with that authority depending on the circumstance the child is in Pre-Industrial and Industrial Revolution Marketplace - answer-Dependence on one's own skills Honesty and competence of local producer - handshake was as good as a contract Last four decades of 19th Century - Rapid industrialization; nationwide markets - Could no longer depend on past experience to judge goods; no information upon which to judge new goods entering marketplace - Corruption to business and government; corporate schemes to eliminate competition; control prices First Era: Late 1800-Early 1900's - answer-1898 First National Consumer's League formed (NCL) - Focused mostly on worker conditions Reformers (middle to upperclass) - formed the first consumer's league in NYC in 1891 - prepared a "white list" of shops that paid fair wages, had reasonable hours, and sanitary conditions - focused on local social problems and political corruption John Pemberton - answer-Invented Coca-cola as a headache cure Derived from Peruvian coco leaves and Africa cola nuts Coca-cola did contain cocaine Was initially a headache tonic The switch from cocaine to sugar in Coca-Cola - answer-In animal studies, sugar has been found to produce more symptoms than is required to be considered an addictive substance Animal data has shown significant overlap between the consumption of added sugars and drug-like effects, including bingeing, craving, tolerance, withdrawal, cross-tolerance, cross-dependence, reward, and opioid effects Sugar addiction seems to create a dependence to the natural endogenous opioids that get released upon sugar intake In both animals and humans, the evidence in the literature shows substantial parallels and overlap between drugs of abuse and sugar, from the standpoint of brain neurochemistry as well as behavior Today's Headache Tonic - answer-In the late 1990s, pharmaceutical companies reassured the medical community that patients would not become addicted to opioid pain relievers and healthcare providers began to prescribe them at greater rates Increased prescription of opioid medications led to widespread misuse of both prescription and non-prescription opioids before it became clear that these medications could indeed be highly addictive Opioids are not street drug crisis, they are hitting every demographic - answer-Two young men from Lawrenceville A family lost two sons on the same day to opioid overdoses Muckrackers - answer-American journalists, who attempted to expose the abuses of business and the corruption in politics The term derives from the word muckrake used by President Theodore Roosevelt in a speech in 1906, which agreed with many of the charges of the muckrakers but asserted that some of their methods were sensational and irresponsible Muckrackers Examples - answer-Mcclure's Magazine - Standard oil: bribery, fraud, violence Dr. Harvey Wiley: worked for the US department of Agriculture - Food preservation - "Posion Squad" volunteers who were feed food adulterants to see effect -- chemical impurities or substances that by law do not belong in a food, pesticide, or other substance. Some are added intentionally to lower the manufacturing cost of the product The Poison Squad - answer-Twelve young men sat around a fine dinner table. The delicately brought forkfuls of delicious foods to their mouths, each morsel laced with formaldehyde and benzoate. Borax tables polished off the meal. These men were the poison squad for five year, beginning in 1902. Their nightly meals came from a government-rum kitchen, where they ingested common-and previously untested-food preservations. This danger facing squad was not only responsible for proving a need for ingredient lists on food labels, but they propelled the creation of our modern FDA. More Muckrackers - answer-Upton Sinclair - "The Jungle" fictional expose of the working conditions of Chicago meat packing houses - Nauseated readers President Theodore Roosevelt - Threw support behind Meat Inspection Act First Era: Early 1900s Legislation - answer-1887: Interstate Commerce Act - address the issues of railroad abuse and discrimination 1890: Sherman Antitrust Act - prohibit trusts (concentration of economic power in large corporations) 1906: Pure Food and Drug Act; Meat Inspection Act Ended by: Economic hardship, WW1 Second Era: 1920s-1930s - answer-1920s: Incomes rose; advertising, new products; n=purchasing unfamiliar consumer durables and foods - Your money's wroth (Chase & FJ Schlink, 1927) called for product testing - Consumers' Research (CR) groups formed by Schlink to do product research Ended by Great Depression Second Era: 1930s - answer-Consumer Organizations/Books - 1993: 100,000,000 Guinea Pigs: Dangers in Everyday Foods, Drugs, and Cosmetics (Kallet & Schlink) - Its central argument propounds that the American population is being used guinea pigs in a giant experiment undertaken by the American producers of food stuffs and paint medicines and the like FDA activities and FDR sent message to Congress to strength Food & Drug Administration (FDA) - 1936: American Chamber of Horrors FDA exhibit of unsafe cosmetics and adulterated foods - There was no internet at this time so consumer advocations had to take the message to the people: they went to county fairs, street fairs, any place where people gathered This is a Big Deal - answer-1937: The Elixir Sulfanilamide disaster was a mass poisoning in the US. It caused the deaths of more than 100 people. The Capsule form was safe, the liquid was not; but then, they didn't test it before they marketed it - After this manufacturers had to test/prove drug safety Second Era: 1940s-1950s - answer-Economist John Kenneth Galbraith is known for his liberal views. His book, The Affluent Society, called for less emphasis on production and more on public service He was a key advisor to JFK and was a friend of Esther Peterson, who later became the first special assistant for consumer affairs to President Johnson Advertising became more pervasive with the advent of television John Kenneth Galbraith - answer-Influenced JFK to the point where JFK created the Peace Corps so people could spend their time in public service and not focus so much on capitalism Second Era: Legislation - answer-1934: Federal Communications Commission - Regulates communications by radio, television, wire, satellite and cable 1938: Federal Food, Drug, and Cosmetic Act - Regulates product ingredients Ended by: WW2 Regulating Drugs - answer-The Bayer Company sold heroin as a "superior cough suppressant" Merck (Germany) offered 800 different products in its catalogue including quinine, morphine, strychnine and codeine Edward Robinson Squibb, MD, founded a company to supply ether and chloroform to the US Navy Why include Cosmetics? - answer-Countless beauty mavens suffered serious health problem thanks to killer cosmetics like Lash Lure, an aniline eyelash dye introduced in 1930s that caused 16 cases of blindness and one death and Koremlu, a depilatory cream of the same era that contained rat poison Are we doing any better today - answer-You have probably heard about Latisse, the eyelash grows that's been on the ,market since the FDA approved it in December 2008 The manufacture, Allergan, reports that permanent brown pigmentation of the iris is a potential side effect The Third Era: The 1960s and 70s - answer-Priced by the 50s when rapid increase in real income; high levels of consumption - but consumers wanted to make educated purchases Resurgence of interest in consumer education American Council on Consumer Interests established to encourage fact finding on consumer problems Activities of Government - President Kennedy's Consumer Message in 1962 -- Enunciated the "Consumer Bill of Rights" JFK: Consumer Bill of Rights - answer-The right of safety to be informed to choose to be heard by the government in decision making The Right to Safety - answer-Products offered for sale should not pose undue risk of physical harm to consumers or their families; yet in a recent year, for example, some 33 million people in the US were reported injured--and 30,000 were killed--in product-related accidents. Products that cause injuries include impure food, defectively manufactured automobiles and tires, drugs that have harmful side effects, and unsafe appliances CPSC - answer-The US government agency responsible for the safety of most products - the Consumer Product Safety Commission The CPSC was established in 1972 to protect the public from unreasonable risk of injury caused by consumer products Responsible for enforcing the Flammable fabrics Act (1953), which requires fabrics to meet standards of fire resistance, as well as the Poison Prevention Packaging Act (1970), and the Hazardous Substances Act (1960), which ban the use of certain dangerous substances and require warnings and safety information on the labels of others. The CPSC does not have authority over food, drugs, or motor vehicles FDA - answer-The Food and Drug Administration is charged with ensuring that processed foods, drugs, medical devices, and cosmetics are safe and properly labeled; that foods are wholesome; and that drugs are effective - Has the power to seize unsafe products and to criminally prosecute businesses that violate safety laws and standards - The FDA inspects food-processing plants to be sure that foods are made and packaged under sanitary conditions - The agency must approve the safety and efficacy of all new prescription drugs before they can be marketed. The FDA also sets safety standards for radiation-emitting products such as microwave ovens The Right to Be Informed - answer-Consumers need sufficient information in order to choose wisely among the competing products and services available. The marketplace, however, contains a great many different and complex products, and advertising is usually not information enough for consumer purposes - Federal Fair Packaging and Labeling Act - The Federal Truth in Lending Act - The Federal Trade Commission The Federal Fair Packaging and Labeling Act (1967) - answer-Requires that packages be labeled truthfully with such basic facts as quantity and ingredients The Federal Truth in Lending Act (1968) - answer-Requires that consumers be told in clear, accurate, and uniform terms how how it costs them to borrow money from a lender The Federal Trade Commission (FTC) - answer-Bears the primary responsibility for making sure that advertising and labeling are not false or misleading - Many consumer problems are caused by incorrect or fraudulent information The Right to Choose - answer-The structure of the American economy system is based on the belief that, generally, competition is the best regulator of the marketplace. According to this theory, when many companies are selling a product, the effort of each to attract more customers keeps prices at the lowest level that allows businesses to cover costs and make a fair profit. The Right to Be Heard - answer-A consumer who has been cheated or who has bought a product r service that does not perform properly has a right to seek a refund, replacement of the product, or other remedy. Sometimes, however, a buyer finds that the manufacturer or seller will not cooperate in resolving the complaint. In recent years laws have been passed to help dissatisfied consumers. The Better Business Bureau - answer-A business association, makes information about complaints it has received against business available to interested parties Esther Peterson - answer-First appointee to the post of White House Consumer Advisor - Later removed by Ford, reappointed by Carter Third Era: 1960s and 1970s - answer-Rachel Carson's "The Silent Spring" (1962) - inspired widespread public concerns about pesticides and pollution of the environment - known as the "mother of the environmental movement" DDT Banned - answer-DDT was developed as the first of the modern insecticides early in WW2. It was initially used with great effect to combat malaria, typhus, and the other insect-borne human diseases among both military and civilian populations - DDT was banned because it made the egg shells of the Bald Eagle very fragile; thus, once the parents sat on the eggs to warm them, they were crushed Third Era: Legislation - answer-1960: Federal Hazardous Substances Labeling Act - requires that certain hazardous household products beat cautionary labeling to alert consumers to the potential hazards 1962: Kefauver-Harris Drug Amendment - required drug companies register with FDA 1966: National Traffic and Motor Vehicle Safety Act - allowed new standards to be set by the federal government 1967: Wholesome Meat Act - State and federal meat inspection 1968: Wholesome Poultry Products Act - inspects and grades poultry 1969: Child Protection and Toy Safety Act - warning labels for age appropriate toys 1970: Credit Card Liability Act; Poison Prevention Packaging Act; Clean Air Act 1972: Consumer Product Safety Commission established 1974: Fair Credit Billing Act 1975: Magnusson-Moss Warranty and Federal Trade Commission Improvement Act Reent Decades: 1980s to 2000s - answer-Continued trend toward economic and social deregulation, market-based approaches, and emphasis on personal responsibility Some new consumer protection laws primarily in response to events and new technologies creating previously unaddressed consumer problems Abolishment of the White House Office of Consumer Affairs 1980s-2000s - answer-1980s saw less government intervention 1990s had little emphasis on consumer protection but environmental issues gained support Attention paid to corporate scandals and the need for consumer protection and anti-trust legislation Credit CARD Act of 2009 - answer-It is comprehensive credit card reform legislation that aims "to establish fair and transparent practices relation to the extension of credit under an open end consumer credit plan, and for other purposes" - regulates interest rate hikes - sets fee caps - sets age limits - controls funky wording - prevents double cycle billing Patient Protection and Affordable Care Act (PPACA) of 2010 - answer-The PPACA reforms certain aspects of the private health insurance industry and public health insurance programs, including increasing insurance coverage of pre-existing conditions and expanding access to insurance to over 30 million Americans 0 being challenged in state courts as to the constitutionality of the Act Consumer Financial Protection Bureau (CFPB) July 21, 2011 - answer-Elizabeth Warren was chosen by President Barack Obama last year to set up the new CFPB Former Ohio Attorney General Richard Cordray became the first director Today the CFPB is somewhat in limbo Current director Mick Mulvaney has made some major revisions, reconsidering consumer-protecting payday-loan rules and dropping lawsuits against payday lenders Mulvaney, who as a Republican lawmaker supported abolishing the agency he now leads Two Different Economic Theories - answer-Adam Smith - philosophy: Free Exchange John Maynard Keyes - philosophy: government intervention Adam Smith (1776) - answer-Wrote "An Inquiry into the Nature and Causes of the Wealth of Nations" stated that, "consumers act in their own self interest and markets work with the invisible hand" - the founder of modern economics - felt consumers should be given the freed and authority to run their own economic affairs John Maynard Keyes - answer-English economist, published "The General Theory of Employment, Interest, and Money" - central message was that economic activity in a capitalist system is determined by the willingness of entrepreneurs to make capital investments - if they won't do it, the government must Economists Generally Agree - answer-Consumers are rational (having the ability to reason) Consumers are acquisitive (having strong desire for things, ideas, and information) We sometimes question... - answer-Rationality - having the ability to reason On what does it depend? - answer-Behavioral economists introduce psychologically realistic models of economic agents into economic theory Particularly: - judgement - attitudes How do - answer-our judgments impact our decision making? our attitudes impact our decision making? Judgement - answer-A balanced weighing up of evidence preparatory to making a decision. A formal process of evaluation applies. Attitude - answer-A concept in psychology. Attitudes are positive, negative, or neutral views of an "attitude object": i.e. a person, behavior, or event Attitudes come from judgements - attitudes are expected to change as a function of experience Attitudes develop on the ABC Model - answer-Affect, Behavioral change, Cognition - the affective response is a physiological response that expresses an individual's preference for an entity - the behavioral intention is a verbal indication of the intention as an individual - the cognitive response is a cognitive evaluation of the entity to form an attitude Attitude Evidence - answer-How down discern someone's attitude? By the choices they make.. What is a theory? - answer-An organized system of ideas or beliefs that can be measured Theories are useful in guiding research and explaining behavior Begins with curiosity: - what kind of people would buy doggie treat maker? Theory Process - answer-Begins with Exploration Moves to Description Seeks Explanation Develop a Model Requires Validation Exploration - answer-Looking where others have not looked before Description - answer-Tell what you found while exploring Explanation - answer-Predicting relationships among variables A HYPOTHESIS Model Development - answer-Representing these relationships visually Validating - answer-finding/testing How would I test my theory? The Scientific Method - answer-Checking, testing, and conducting trials to determine whether a theory is consistent with facts and outcomes What a Theory Does.... - answer-Describe what is happening Explain why it is happening Develop a model Predict what will happen Control, test what is happening Prediction - answer-The goal is to be able to predict consumer behavior Controlling, Testing - answer-We can test consumer behavior by offering "test markets" - coke versus pepsi taste test Can we control consumer behavior? - absolutely, public policy says those under 18 cannot buy tobacco products Consumer Theories Too. - answer-Past behavior is a strong predictor of future behavior - habit buying--how many of you have a favorite restaurant? - brand loyalty -brand extension Crest Family - answer- Consumer Economics - answer-The study of exchange activities One good is exchanged for another Theory and Exchange Process defined - answer-Exchange process: people negotiate to reach an agreement Transaction occurs when the exchange is fulfilled Theory of Reasoned Action - answer-Assumes consumers are rational... Behavioral intentions are based on: - attitude toward specific behavior --the rightness or wrongness - social or normative beliefs about appropriateness of the behavior --who will be judging your actions? Behavior intentions are based on: - motivation to comply with normative beliefs - consumption is based on beliefs and attitudes, has consequences, and it takes place within a social context The Red Hat Society - answer-membership in the RHS is a rewarding vehicle for reconnecting old friends, making new friends, and rediscovering the joy of getting together with other women for the express purpose of having fun Prospect Theory - answer-A Theory that people value gains and less differently and, as such, will base decisions on perceived gains rather than perceived losses Thus, if a person were given two equal choices, one expressed in terms of possible gains and theater in possible losses, people would choose the former Message Framing - answer-Negatively framed - explains devastating effects if you don't make this purchase - time will run out on this sale - AKA the stick Positively framed - explains benefits to be gained from purchase - you will lose 20lbs in 3 minutes - AKA the carrot Endowment Effect - answer-A person's willingness to accept (WTA) compensation for a good is greater than their willingness to pay (WTP) for it once their property right to it has been established People will demand a higher price to sell their own goods than other consumers will be willing to pay for the goods Theory of Mental Accounting - answer-Human behavior affects what people set as appropriate prices for our goods and services We account for the value of goods differently Innovation Theory - answer-Innovators are the earliest buyers of new brands, services, products, stores, or other marketing offers Consumer innovators are more likely to take risks Innovators are less price sensitive than later adopters Targeting Innovators - answer-Marketing strategies, advertisers want to find the innovators! Products diffuse through consumers beginning with innovators - think fashion cycle First Civilian Hummer? - answer-The hummer was a military vehicle until Arnold Schwarzenegger wanted one. Then the company began targeting like minded consumers Consumer Theories - answer-The framework's basic premise leading to the circular flow model of consumer economics Consumer Economics - answer-Involves the process of exchange between two or more parties Consumer actions affect the market The market's actions affect the consumer Exchange Process - answer-Consumers - Consumer actions affect the market - Markets - market actions affect the consumer Utility - answer-Generally refers to the usefulness of a product, service, or idea The satisfaction one receives from the use of a product, service, or idea Law of Diminishing Marginal Utility - answer-In a given period of time, a consumer will receive less satisfaction from each successive unit consumed Usually in the Marketplace.. - answer-It's a happy exchange between consumer and the market, but sometimes things go wrong resulting in Consumer-Market conflict - if this happens, we hire a Kvetcher Kvetcher - answer-A person who has "complaining" skills; in that, they write letters, make phone calls or go in person to act on another's persons behalf for pay. The person who hires the Kvetcher might be less assertive; thus, they need the Kvetcher's services The Framework's Basic Premise Leading to the Model - answer-Consumer-market exchange Public Policy as mediator -- make sure the exchange is fair - consumers - public policy - markets Public Policies step in - answer-Public policy is a plan or decision by government to act in a certain way or direction suck as to keep products safe, open up with competition, eliminate poverty, allocate money to research, to protect the environment, and so on. Public Policies - answer-Take on the role of mediator Make sure the exchange is fair in terms of competition, labeling, access, advertising, and pricing Who else steps into the model? - answer-Consumer Organizations - AARP - National Consumer's League - American Council on Consumer Interests - Consumer Federal of America - Jump$tart Coalition Who else? - answer-Trade and Professional Associations serve to resolve problems between consumers and member companies They also provide consumer information and informal education - American Banker's Association - American Medical Association Adding more to the consumer model - answer-The media bombards consumer with advertisements, but the media also provides information and sometimes consumer advocacy - radio first brought media into homes The internet is useful in providing services and information, but consumers need to pay attention to the credibility of the source Technology - the application of scientific knowledge to useful purposes - ways of combining materials into goods and services Technological Obsolescence - answer-When technology becomes obsolete - computer programs - televisions We also add... environment - answer-The space in which all transactions or potential transactions occur All external conditions, all encompassing - interest rates - inflation rates Targeted advertising - answer-Tailed to specific geographical and subcultural areas You won't see the same ads in GA as you see in Iowa Circular flow model of Consumer Economics - answer- Circular Flow Model (Consumer Power Model) - answer-All of the pieces fit together - consumers, markets, public policy, consumer organizations, trade associations, media, environment, technology, economy Incorporates theories from many areas Quantifying/Measuring Well Being - answer-Quality of life Level of living Standard of living Life style Human Development Index score - life expectancy, school enrollment, literacy Quality of Life - answer-Consumers' perception of and satisfaction with their lives Level of Living - answer-The way consumers are actually living - Actual--quantifiable Your income, your wealth, your net worth Standard of Loving - answer-Level to which you aspire to live Ideal--where do you want to me? Why are you attending school"? - to achieve a higher standard of living Life Style - answer-How one lives and includes patters of time use and living space Human Development Index - answer-Quantifies well-being Measures the progress of nations by standardizing comparisons across the globe Consumer Price Index - answer-Measure prices each moth of a fixed basket of 400 goods and services bought y the typical consumer - consumer durables: last more than 3 years Published by the Bureau of Labor and Statistics in the Department of Labor - some dips, but in general increasing prices Goods - answer-Gasoline Fruits Vegetables Food away from home Alcohol beverages Heating/cooling Consumer Confidence Index - answer-Measured by the Conference Board, NY Based on surveys of 5,000 consumers How do consumers view the health and direction of the economy? - if consumers are confident in the economy, they buy more, invest more, travel more, etc. Such measurement is indicative of consumption component level of the GDP - The Federal Reserve looks at the CCI when determine interest rate changes, and it also affects stock market prices