Chapter 1Chapter 1

The ConsumerThe Consumer

in a Free Societyin a Free Society

Chapter ConceptsChapter Concepts

A free economy does not mean a problem-free economy.

Consumerism—the consumer’s effort to influence the marketplace—must continue to make itself heard, despite pressures.

Soundness of economy is based on a balance between production and consumption.

For many reasons, the consumer does not have the power in the marketplace that the classical economic theory espouses.

How the Economy OperatesHow the Economy Operates

Basic consuming units of the economy—households

Medium of exchange in the economy—money

Expenditures and savings—Expenditures help economy growSavings are investments in economy

Tools to Measure Performance Tools to Measure Performance and Growth of the Economyand Growth of the Economy

Gross national product (GNP)

Gross domestic product (GDP)

Net national product (NNP)

National income (NI)

Personal income Disposable

personal income Per capita

disposable income Discretionary

income

Consumers—Consumers—Who Are They?Who Are They?

Those in the labor force Homemakers Retirees Children Others: Incapacitated or

unemployed

Classical Economists’ ModelClassical Economists’ Modelof Consumer Behaviorof Consumer Behavior

Consumer sovereignty—Meeting consumers’ needs is the primary function of the economy.

People engage freely in productive enterprises to produce what consumers want.

Competition ensures that consumers get what they want at prices at or close to production costs.

Price SystemPrice System

If prices go down, decision makers curtail production.

If prices go up, they increase production.

Assumption: Consumers reach decisions about what to buy or not to buy based on full knowledge of the marketplace.

Organization and Operation Organization and Operation of a Free Economyof a Free Economy

Questions to Ask When Questions to Ask When Satisfying Consumer WantsSatisfying Consumer Wants

What makes our economy go? What differences exist among

consumers? Do consumers make decisions as

individuals or as part of groups? Do consumers really know what they

want? Can consumers determine quality? Can consumers be sure of safety?

Satisfying Consumer Wants Satisfying Consumer Wants ((continued)continued)

Can consumers check the quantity? Can consumers detect fraud? Can consumers cope with pricing

practices? Does competition control prices? Does market price measure subjective

value?

Lack of CompetitionLack of Competition

Oligopoly:A situation in which few sellers control

the majority of the supply of a product or service.

Monopolistic competition:A situation in which numerous sellers

have similar or identical products and services.

The First Era of the The First Era of the Consumer MovementConsumer Movement

Dr. Harvey W. Wiley—father of consumerism

American Medical Association (AMA) began analyzing drugs

The Jungle by Upton Sinclair Establishment of the Better Business

Bureau Pure Food and Drugs Act of 1906: The

first federal law in U.S. history enacted specifically to protect consumers

The Second Era of the The Second Era of the Consumer MovementConsumer Movement

First consumer oriented magazine, Consumer Research

Stock market crash—1929 President Franklin Roosevelt and New

Deal programs General Federation of Women’s Clubs—

sent letters to Congress endorsing various proposed laws penalizing manufacturers who defrauded consumers

Food, Drug, and Cosmetics Act of 1938

The Third Era of the The Third Era of the Consumer MovementConsumer Movement

The Hidden Persuaders by Vance Packard Silent Spring by Rachel Carson President John F. Kennedy

Consumer Bill of Rights Senator Paul Douglas

Truth-in-Lending legislation Senator Philip Hart

Fair Packaging and Labeling Act

(continued)

Third Era of the Consumer Movement Third Era of the Consumer Movement ((continued)continued)

Ralph Nader President Lyndon Johnson

Supporter of the consumer movement; passed more legislation than any other president in U.S. history

President Richard NixonSigned numerous pieces of consumer legislation

President Gerald FordAnnounced the right to consumer education

President Jimmy CarterAppointed numerous strong consumer advocates

Flow of Money in the EconomyFlow of Money in the Economywages towages tointerest tointerest to

rent torent toprofits toprofits to

transfers totransfers to

taxes to local, taxes to local, state, and federalstate, and federal

governmentsgovernments

retailersretailers

savingssavings

governmentgovernment

current goodscurrent goodsand servicesand services

producers ofproducers ofraw materialsraw materials

processorsprocessors

wholesalerswholesalers

financialfinancialinstitutionsinstitutions

ConsumersConsumers

who spend forwho spend forwho paywho pay

Consumer RightsConsumer Rights

Right to safety Right to be

informed Right to choose Right to be

heard Right of redress

Right of consumer education

Right of environmental health

Right of service

Consumer ResponsibilitiesConsumer Responsibilities

Be aware of role and function in the economy

Perform role effectively Avoid waste; be aware of responsibility to

future generations Do not exploit those in the labor force Be honest Protest when a product or service is not

what it is advertised to be

Global EconomyGlobal Economy

Outsourcing International marketing and sales Westernization Globalization World Consumer Rights Day International Organization of

Consumers Unions

How Do You View It?How Do You View It?OutsourcingOutsourcing

What are your opinions on outsourcing?

Do you think outsourcing is useful to U.S. firms because it’s a quick and cost-effective alternative to hiring fulltime employees, or do you think it is detrimental to the U.S. labor force, many of whom have lost their jobs?

Truth-in-Lending ActTruth-in-Lending Act

Requires creditors to disclose to the consumer in writing certain cost information, such as thethe annual percentage rate, before consumers enter into credit transactions.

Lets consumers know what finance charges will be.

Protects against unauthorized use of credit cards.

Regulates the advertising of credit terms.