FHCE 3100 Test 1 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 if important because resources are scarce -Scarcity implies choice and choice implies cost Scarcity - answer--society has limited resources and therefore cannot produce all the goods and services people wish to have -Not enough resources are available to satisfy one's needs and wants and choices have to be made about their use 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 of work done Satisfaction is also known as... - answer-utility Adam Smith (1776) - answer--Author of "An Inquiry into the Nature and Course of the Wealth of Nations" -"consumers act in their own self-interests and markets work with the invisible hand" -Founder of modern economics -Felt consumers should be given 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 services produced and consumed by consumers Capitalism - answer--a social system based on the recognition of individual rights -The state is separated from economics -Being able to freely choose among a vast array of commodities gives people a sense of freedom Consumerism - answer-The belief that goods given meaning to individuals and their roles in society Buying goods and services is an act of trust? - answer-TRUE -Because we assume our purchases will increase our satisfaction -However, consumption may not always bring satisfaction Examples of Unsatisfactory Consumption - answer--Unsatisfactory products -Injurious consumption (negative long-run) -Consumer Fraud Caveat Emptor - answer-"May the buyer beware" Needs - answer--the barest minimum physical necessities that allow you to survive Maslow's Hierarchy of Needs - answer-Physical (largest) Safety Relational Esteem Self-Actualization Wants - answer-What people would acquire if their resources were unlimited Resources - answer--Things used to produce other things to satisfy people's wants and needs -Provide the means to satisfy the family system's demands -Material (non-human) -Human Resources (personal characteristics) Consumption Process - answer--Awareness: what are needs and wants -Thinking: gather information -Planning: shopping around -Implementing: buying -Evaluation: would you re-purchase? **Dr. Moorman's bar example** Awareness - answer--a stimulus lets us know that something is needed or desired Thinking - answer--the mental exploration of the possibilities: weighting pros and cons and gathering information about the product in question Planning - answer-Deciding "ordered steps of action" needed to make the purchase a reality **Dr. Moorman's baby sister example at Christmas** Implementing - answer-Making the purchase or actively pursuing making the purchase Evaluating - answer--Spend time reflecting on the outcome Factors that Influence Consumers - answer-1. Economics 2. History 3. Consumer Culture 4. Individual Traits 5. Physiological Needs 6. Desire for technology 7. Political area Economics - answer--The condition of national and worldwide economies during times of decision making History - answer--the background history of each person influences his or her decisions (personal and family histories) -The history of the area in which a person resides influences consumer decision making Consumer Culture - answer--refers to patterns of human activity and the symbolic structures that give such activity significance -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 Traits - answer--Age -Eye color -Hair color/type -Weight **one of the biggest target markets** -Height Physiological Needs - answer--thirst -hunger -safety -housing -protection Desire for technology - answer--driven by my generation -technology includes the methods and materials that individuals use to get what they want -Including machines, techniques, material objects, and processes Political Area - answer--politics affect our economic decision making -policies impact our consumption The Consumer Movement - answer--Adam Smith wrote Wealth of Nations in 1776 -Consumers will make choices that give them the greatest amount of satisfaction -Invisible Hand (minimizing government intervention in the marketplace) Rational Self Interest: Choice Theory - answer--dominant theoretical paradigm in Microeconomics -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 **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: a high standing achieved through success, influence, or 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 As Price Increases, demand is supposed to - answer-DECREASE The Free Market System - answer--US founded on this type of system -However, by the late 19th century, monopolies developed and led to the desire for consumer protection Monopoly - answer--a persistent market situation where there is only one provider of a product or service (no competitors) -Do not protect consumers -Take choice out of the consumers hands -Do not provide good/safe/equitable products 1880s Monopolies - answer--Railroads (Pacific Railway Company) -Telephones (American Bell Telephone) "Railroading" Consumer Movement Defined - answer--Policies aimed at regulating products, services, methods and standards of manufacture, selling, advertising in the interests of the buyer -Consumer activists 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-1. elderly 2. youth 3. poor 4. rich How Do We Protect Consumers? - answer--Consumer Policies -Education Background of Consumer Movement - answer--"Primary goal of the movement is to advance efficiency and equity in the marketplace." **We don't have this** The Movement Contains - answer--People who are motivated by economic issues, and seek benefits for themselves (NRA) -People who are guided by moral concerns and pursue benefits for others (Mother's Against Drunk Drivers) Consumer Movement is.... - answer--Diverse in goals, levels of commitment, and social backgrounds of participants -Exhibits diversity in leadership (demographics, preferred tactics and strategies, ideology, anti-government vs. pro-government) Ralph Nader - answer--Unsafe at Any Speed Detailing his claims of resistance by car manufacturers to the introduction of safety features Esther Peterson - answer--workers' rights -Equal pay for workers -Truth in advertising -Nutrition labels and "sell before" labels for food products -first appointee to post of White House Consumer Advisor (removed by Ford, reappointed by Carter) Economic vs. Social Regulation - answer-Economic Regulations regulate the price, entry, exit, and service of an industry -Examples: gasoline, long distance telephone prices Economic vs. Social Regulation cont. - answer-Social regulations address health, safety, employment fairness, environmental quality, and other non-economic questions -Examples: job discrimination, clean water/air acts Two Specific At Risk Groups - answer-Women and Children **Men have less risk factors** Women's Movement - answer--1837: young teacher Susan B. Anthony asked for equal pay for women teachers -1848: The first women's rights meeting in the US at Seneca Falls, New York. Susan B. Anthony - answer-Was a prominent American Civil Rights leader who played a pivotal role in the 19th century Women's rights movement to introduce women's suffrage to US **Was already in place because of 14th Amendment Lucy Stone - answer--first woman in Massachusetts to achieve college degree -first woman to marry and keep her own last name Elizabeth Cady - answer--insisted the word obey be dropped from her marriage vows December 10th, 1869 - answer-Wyoming territory passed a law permitting women to vote (not many women here however) 1872 - answer--Republican Party platform made reference to Women's Suffrage -Susan B. Anthony urged women to vote using the 14th Amendment as the foundation for that right -November: Anthony and others attempt to vote and are arrested -Victoria Woodhull: first woman to run for president 19th Amendment - answer--August 26th, 1920 -Women could vote in fall elections, including presidential elections Children's Movement - answer--Born in 1880s with the Orphan Train -In big cities when a child's parents died, the child frequently couldn't support his or herself -Boys usually became factory or coal workers -Girls became prostitutes or saloon girls or went to work in sweat shops -All these jobs only paid starvation wages Child Labor Reform and the US Labor Movement - answer--1832: New England unions condemn child labor -1836: first state child labor law -1842: states begin limiting children's work days (10 hours only) -1881: Newly formed AFL supports state minimum age laws (14 years old) 1906 - answer--Legislature 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 to Blame? - answer--Massachusetts was first state to make children attend school **children can't make decisions for themselves 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 the 19th century -Rapid industrialization: nationwide markets -No longer depend on past experience to judge goods; no information upon which to judge new goods entering marketplace -corruption in business and government; corporate schemes to eliminate competition; control prices First Era: Late 1800-early 1900s - answer--1898: First National Consumer's league formed (NCL) -focused mostly on worker conditions First Era: Late 1800-early 1900s cont. - answer--Reformers (middle to upper class) -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 Muckrakers - answer--American journalists who attempted to expose the abuses of business and the corruption in politics -President Theodore Roosevelt coined the term in 1906 speech in which he agreed with many of the charges of the muckrakers but asserted that some of their methods were sensational and irresponsible Examples of Muckrakers - answer--McClure's Magazine (Standard Oil) -Dr. Harvey Wiley: Food preservation and the poison squad More Muckrakers - answer--Upton Sinclair (The Jungle) -exposed working conditions of the Chicago meatpacking industry -President Theodore Roosevelt threw support behind the Meat Inspection Act First Era: Early 1900s Legislation - answer--1887: Interstate Commerce Act (addressed the issues of railroad abuse and discrimination) -1890: Sherman Antitrust Act (prohibit monopolies) -1906: Pure Food and Drug Act; Meat Inspection Act Ended by economic hardship, World War I Second Era: 1920s-30s - answer--1920s: incomes rose, advertising, new products; purchasing unfamiliar consumer durables and foods -Your Money's Worth called for product testing -Consumer's Research (CR) group formed to do product research ended by Great Depression Second Era: 1930s - answer--Consumer Organizations/Books -1933: 100,000,000 Guinea Pigs: Dangers in Everyday Foods, Drugs, and Cosmetics -Its central argument propounds that the American population is being used as guinea pigs in a giant experiment undertaken by the American producers of food stuffs and patent medicines and the like Second Era: 1930s cont. - answer--FDA activities and FDR sent message to Congress to strengthen Food and Drug Administration (FDA) -1936: American Chamber of Horrors Second Era: 1930s cont. - answer-1937: The Elixir Sulfanilamide disaster was a mass poisoning in the US. It caused the deaths of more than 100 people. Capsule form was safe, liquid was not. -After this, manufacturers had to test/prove drug safety Second Era: 1940s-50s - answer--Economist John Kenneth Galbraith is known for his liberal views (book Affluent Society) -called for emphasis on less production and more on public service -Advertising more prevalent because of television Second Era: Legislation - answer--1934: Federal Communications Commission -1938: Federal Food, Drug, and Cosmetic Act Ended by World War II Third Era: 1960s and 70s - answer--Preceded 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 (Consumer Bill of Rights) Consumer Bill of Rights - answer--The right to safety -To be informed -To choose -to be heard by the government in decision making The Right of Safety - answer-Products offered for sale should not pose undue physical harm to consumers or their families CPSC - answer--The US government agency responsible for the safety of most products is the Consumer Product Safety Commission -established in 1972 Flammable Fabrics Act (1963) Poison Prevention Act (1970) Hazardous Substances Act (1960) **Does not have authority of food, drugs, or motor vehicles FDA - answer--Food and Drug Administration -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 -Most approve safety and efficacy of new drugs, inspects food processing plants, and sets safety standards for radiation emissions from microwaves The Right to Be Informed - answer--Consumers need sufficient information in order to choose wisely among the competing products and services avaliable 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--TILA -requires that consumers be told in clear, accurate, and uniform terms how much it costs them to borrow money from a lender Federal Trade Commission - answer--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--When many companies are selling the same product, the effort of each to attract more customers keeps prices at the lowest level that allows businesses to cover costs and make fair profit -competition= best regulator in the marketplace The Right to be Heard - answer--A consumer who has been cheated or who has bought a product or service that does not perform properly has a right to seek a refund, replacement of the product or other remedy Better Business Bureau - answer-A business association makes information about complaints it has received against businesses available to interested parties Rachel Carson - answer-Silent Spring (1962) -Inspired widespread public concerns with pesticides and pollution of the environment -Mother of the environmental movement DTT Banned - answer--Banned because of effect on bald eagles -First of the modern insecticides -Still used worldwide Federal Hazardous Substances Labeling Act (1960) - answer-requires that certain hazardous household products bear cautionary labeling to alert consumers to the potential hazards Kefauver-Harris Drug Amendment (1962) - answer-required drug companies to register with FDA National Traffic and Motor Vehicle Safety Act (1966) - answer-Allowed new standards to be by the federal government wholesome Meat Act (1967) - answer-State and federal meat inspection Wholesome Poultry Products Act (1968) - answer-Inspects and grades poultry Child Protection and Toy Safety Act (1969) - answer--Warning labels for age appropriate toys 1980s-2000s - answer--continued economic and social deregulation -market-based approaches -emphasis on personal responsibility -abolishment of White House Office of Consumer Affairs 1980s saw - answer--less government intervention (Reagan Years) 1990s had - answer-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--comprehensive credit card reform legislation that aims "to establish fair and transparent practices relating to the extension of credit under an open end consumer credit plan, and for other purposes." **Written for 6th grade reading level** Patient Protection and Affordable Care Act (2010) - answer--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 -Being dismantled Consumer Financial Protection Bureau (CFPB) 2011 - answer-Elizabeth Warren chosen by President Obama to set up the new Consumer Financial Protection Bureau Financial concerns, especially student loans John Maynard Keynes - answer--The General Theory of Employment, Interest, and Money -Central message was that economic activity in a capitalistic system is determined by the willingness of entrepreneurs to make capital investments -government can intervene when necessary Economists Generally Agree - answer--Consumers are rational -Consumers are inquisitive Behavioral Economists - answer--introduce psychologically realistic models of economic agents into economic theory -Particularly: judgements and attitudes Judgement - answer-a balanced weighing up of evidence preparatory to making a decision Attitude - answer-a concept of psychology that includes positive, negative, or neutral views come from judgements Affective Response - answer-a physiological response that expresses an individual's preference for an entity Behavioral Intention - answer-a verbal indication of the intention of an individual Cognitive Response - answer-cognitive evaluation of the entity to form an attitude Attitudes are expected to change... - answer-as a function of experience 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 Steps of a Theory - answer-1. Begins with exploration 2. Moves to description 3. Seeks explanation 4. Develop a model 5. Requires validation Exploration - answer-looking where others haven't looked before Description - answer-tell what you found while exploring Explanation - answer-predicting relationships among variables (hypothesizing) Model Development - answer-representing these relationships visually Validating - answer-finding/testing Past behavior is a strong - answer-indication of future buying behavior Habit buying/brand loyalty Exchange Process - answer-people negotiate to reach an agreement Ends with a transaction Theory of Reasoned Action - answer--Assumes consumers are rational -Behavioral intentions are based on attitude toward a specific behavior and social/normative beliefs about the appropriateness of the behavior -Consumption is based on beliefs and attitudes, has consequences, and it takes place within a social context Prospect Theory - answer-people value gains and losses differently and as such will base decisions on perceived gains rather than perceived losses Message framing - answer-Can be positive or negative Endowment Effect - answer-A person's willingness to accept compensation for a good is greater than their willingness to pay for it once their property right to it has been established Basically, 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 Coffee vs. gas example Innovation Theory - answer--innovators are the earliest buyers of new brands, services, products, etc. -Consumer innovators are more likely to take risks -Innovators are less price sensitive than later adopters 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 Utility (also well-being or satisfaction) - answer--Generally refers to the usefulness of a product, service, or idea -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 **glass of water example Public Policy - answer--a plan or decision by government to act in a certain way or direction -Take role of mediator in the consumer-market exchange -Make sure the exchange is fair in terms of competition, labeling, access, advertising, and pricing Other Aspects of the Consumer Model - answer--Consumer Organizations -Trade and Professional Associations -Media -Internet -Technology -Environment (space where transactions occur) Targeted Advertising - answer--tailored to a specific geographical and subcultural area Quantifying/Measuring Well Being - answer--Quality of Life -Level of living -Standard of living -Life style -Human Development Index Score Quality of life - answer-Consumers perception of and satisfaction with their lives Level of Living - answer-The way consumers are actulaly living Standard of Living - answer-level to which you aspire to live Life Style - answer-How ones lives and includes patters of time use and living space Consumer Price Index - answer--measures prices each month of a fixed basket of 400 goods and services bought by a typical consumer -published by the Bureau of Labor and Statistics in the Department of Labor 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 -indicative of consumption component level of GDP -The Federal Reserve looks at the CCI when determining interest rate changes, and it also affects stock market prices Consumption Process - answer--Awareness: what are needs and wants -Thinking: gather information -Planning: shopping around -Implementing: buying -Evaluating: what would you repurchase? Factors that Influence Consumers - answer--Economics -History -Consumer Culture -Individual traits, e.g., age -Physiological needs -Desire for technology -Political area (government standards) Economics and the Business Cycle - answer--Economics: the study of production, distribution, and consumption -Business Cycle: refers to period fluctuations in economic activity Expansion - answer-prosperity, growth, high output, low unemployment, increased retail sales, and housing Unemployment - answer-government conducts a monthly sample survey called the CPS to measure the extent of unemployment in country -classified as unemployed if they do not have a job, have actively looked for work in the prior 4 week, and are currently available to work Recession - answer-Temporary decline or downturn in economy, declining output, income, employment, and trade Typically 6 months to a year Deep recession is called a depression 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 (do this because inflation skews price of things) Inflation - answer--steady increase of prices; makes the purchasing power of your dollar smaller Deflation: falling prices Deflation is a problem for both the company and individual (can't invest in human capital because less profits) Supply - answer-a total amount of a specific good or service that is available to consumers Law of Supply - answer--As the overall available supply of good or services goes up, generally the price goes down -As the pool of available workers increases, the wages offered decrease Quantity Supplied - answer--the amount of a certain product producers are able/willing to offer for sale at each possible price point -Means movement along the supply curve due to change in price -Price changes affect the quantity supplied, but do not impact the overall supply Why does Supply Curve Shift? - answer-1. Prices of other goods 2. Prices of relevant inputs 3. Technology Demand - answer-the ability or the willingness of consumers to buy a particular commodity at a given point in time 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 -Demand is from the consumer point of view; supply if from producers 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. -determined at any given point along a demand curve in a price vs. quantity plane Why the Demand Curve Shifts? - answer-1. Customer Preference 2. Prices of related goods (substitutes or compliments) 3. Income Normal Good/Inferior Good - answer-Normal Goods: any goods for which demand increases and falls when income decreases but price stays constant. Inferior Good: a good that decreases in demand when consumer income rises Giffen Good - answer--type of inferior good -disobeys the law of demand -when the price of the good increases, so does the demand for the good Equilibrium Price - answer-a price at which the quantity of a good or service demanded is exactly equal to the quantity that is supplied Demographics and Consumption - answer--Baby Boomers: -Shadow Boomers: -Generation X: -Generation Y: Consumer Sovereignty - answer-Consumer 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 market -homogeneous products Key to Consumer Sovereignty - answer--Rests largely on information Barriers to Information - answer--ability to acquire -ability to understand -biased information Producer Sovereignty - answer-the producers have the power to decide which products and services society will produce and consumer Government Sovereignty: Patient Protection and Affordable Care Act - answer--Obamacare -enacted with the goals of increasing the quality and affordability of health insurance, lowering the uninsured rate by expanding insurance coverage