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Ch 1,2,3,4,5,6 Notes

by: Alyssa Notetaker

Ch 1,2,3,4,5,6 Notes UI355-741

Alyssa Notetaker

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These are notes from the book covering chapters 1 all the way to 6. It deals with a consumer in a free society, the complexity of consumer demand and seller supply, leading and following, fraud an...
Consumer and the Market
Allie Grotts
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This 17 page Bundle was uploaded by Alyssa Notetaker on Tuesday November 3, 2015. The Bundle belongs to UI355-741 at Southeast Missouri State University taught by Allie Grotts in Spring 2015. Since its upload, it has received 34 views. For similar materials see Consumer and the Market in Professional Education Services at Southeast Missouri State University.

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Date Created: 11/03/15
Chapter 1  The Consumer  in a Free Society  Chapter 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 Operates  Basic consuming units of the economy—households  Medium of exchange in the economy—money  Expenditures and savings—  Expenditures help economy grow  Savings are investments in economy  Tools to Measure Performance and 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— Who Are They?  Those in the labor force  Homemakers  Retirees  Children  Others: Incapacitated or unemployed  Classical Economists’ Model of 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 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 of a Free Economy  Questions to Ask When Satisfying 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 (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 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 Consumer 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 Consumer 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 Consumer 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 (continued)  Ralph Nader  President Lyndon Johnson  Supporter of the consumer movement; passed more legislation than any other president in U.S. history  President Richard Nixon  Signed numerous pieces of consumer legislation  President Gerald Ford  Announced the right to consumer education  President Jimmy Carter  Appointed numerous strong consumer advocates  Flow of Money in the Economy  Consumer 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 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 Economy  Outsourcing  International marketing and sales  Westernization  Globalization  World Consumer Rights Day  International Organization of Consumers Unions  How Do You View It? Outsourcing  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 Act  Requires creditors to disclose to the consumer in writing certain cost information, such as the annual percentage rate, before consumers enter into credit transactions.  Let’s consumers know what finance charges will be.  Protects against unauthorized use of credit cards.  Regulates the advertising of credit terms. Chapter 2  The Complexity of Consumer Demand and Seller Supply  Chapter Concepts  Happiness is subjective and means different things to different people.  Needs, wants, and demands are often confused, but they all have physiological, psychological, sociological, and environmental roots.  Seller supply is an important aspect of the demand concept.  Consumer Wants  For some people, wants are limited and can be easily satisfied.  For other people, wants seem to be unlimited and they strive to acquire more and more goods.  Unlimited wants but limited resources result in scarcity—not all wants will be satisfied.  Four Principles of Consumption  Harmonious consumption  Diminishing utility  Variety  Satiety  Complexity of Wants  Different people experience different things in different ways.  People experience differing levels of satisfaction when consuming a product.  Varying types of wants and influences:  Physiological wants  Psychological wants  Sociological wants  Physiological Needs and Wants  Needs lead people to act, either consciously or unconsciously.  Motives and drives—urges to satisfy needs.  Maslow’s Hierarchy of Needs—lower-order needs must be met before higher-order needs.  Consumer behavior—the action a person takes to satisfy an economic need.  Maslow’s Hierarchy of Needs  Physiological needs (lowest-order)  Safety  Belongingness and love  Esteem  Self-actualization (highest-order)  Consumer Needs Based on Biological Needs  Oxygen  Water  Food  Protection from elements  Health  Consumer Behavior Based on Color Perception  The perception of color, which creates reactions that are pleasant or unpleasant, causes consumers to prefer goods of one color over another.  Sellers have found that by changing the color of a package, sales of a product can be increased by as much as 1,000 percent.  How Do You View It? Consumer Behavior Based on Perception and Appearance  Have you ever purchased a product because of its color or its appearance?  Have you ever not purchased a product because you didn’t like its appearance?  Psychological Wants  Organic motives  Emergency motives  Objective motives  Social Wants— Characteristics of U.S. Society  Desire for achievement  Desire for security  Conformity  Sociability  Appreciation for leisure  Admiration of youthfulness  Strong work ethic  Characteristics of Groups  Ability to communicate—common language  Religion  Government—means of social control  Recognition and appreciation of beauty  Sociability  Stimulants and sedatives—alcohol and narcotics  Group Influence  Taboos  Social conventions  Encouragement or discouragement of certain wants  Desire for prestige  Group welfare  How Do You View It? Group Influence  Think about your participation in groups, both informal and formal.  Does your affiliation with one or more groups influence your consumption or consumer behavior?  Other Forces Influencing Wants  Environmental influences  Climate  Natural resources  Socioeconomic influences  Income  Occupation  Political influences  Fiscal/monetary policy  Taxes  NAFTA, tariffs and quotas  Types of Taxes  Progressive—for example, U.S. federal income tax  Proportional—for example, some state income taxes  Regressive—for example, sales tax  How Do You View It? When Wants Collide  Analyze your own constellation of wants. What factors contribute to your wants and needs? Are those wants and needs being met satisfactorily?  Are any of your wants or needs in conflict? What solutions can you think of to resolve those conflicts?  How Consumer Demand and Seller Supply Come Together  Needs and wants come together in the marketplace as consumer demand.  Complex mixture of physiological, psychological, social, environmental, socioeconomic, and political perspectives.  Sellers respond to consumer demand by providing a supply of products.  Consumer Demand  Economic demand:  Combination of desire and ability to pay.  Inelasticity of demand:  Insufficient rise in demand for a product or service, in relation to a reduction in its price—results in a decline in total sales revenue.  Elasticity of demand:  A rise in demand for a product or service, in proportion to a reduction in its price—results in an increase in total sales revenue.  The Franchise and Business Opportunities Rule  Requires certain disclosures by franchise and business-opportunity sellers.  Requires a disclosure document at least 10 days before a contract is signed:  Seller’s history, background, and financial status  Cost of starting and maintaining the business  Buyer’s responsibilities to the seller  Names of suppliers and other services the buyer must use Chapter 3  Consumers: Leading and Following  Chapter Concepts  The quality of our life is determined by the goods and services we are able to buy. The question is, Who makes the buying decisions, the buyer or the seller?  The American economy is motivated by the profit system.  Manufacturers produce many goods that consumers do not need or want.  Family as Consumers  Members of families are also members of the labor force.  Changes in family structure (i.e., divorce) affect consumption patterns.  Family is most important institution for teaching children how to become wise consumers.  Standard of Living  The quality or quantity of goods and services aspired to by individuals or societies; material measure.  Consumers compare actual level of living to the desired standard—may go into debt in order to keep up.  Becoming Mature Consumers  Economic adult:  A rational and informed consumer, regardless of age.  Economic minor:  An irrational and uninformed consumer, regardless of age.  How Do You View It? Economic Maturity (or Lack Thereof)  Think of a family with which you are familiar (not necessarily your own) —  Are the members of that family economically mature?  Which members of the family are economic adults? Economic minors?  How would you describe their standard of living?  Government Guidance of Consumers  How much guidance do consumers need, and who is doing the guiding?  Ignorant-consumer standard:  A standard based on the assumption that the law should protect even consumers who are ignorant, careless, and wasteful.  Reasonable-consumer standard:  A standard based on the assumption that the government should protect consumers but also that consumers have the responsibility to be informed and rational.  Continuum of Economic Concepts  The Profit System  Business firms will benefit by offering for sale only those goods and services that consumers want.  Assumes consumers know what they want.  Criticisms of the Profit System  Some firms prioritize profit over consumer welfare.  Some firms try to manipulate consumer demand.  Some firms exploit consumers.  Does the Economy Produce What Consumers Want?  Goods are often produced in anticipation of demand.  Manufacturers must estimate how much to produce.  Often, manufacturers produce things consumers do not want or need— leads to waste.  Fair Packaging and Labeling Act  States that food and nonfood packages and their labels should tell consumers clearly what the contents are.  1994 nutritional labeling amendment—mandates that nutrition labels include information on calories, fat, carbohydrates, and so forth. Chapter 4  Consumer Freedoms and Restrictions  Chapter Concepts  Because the conditions necessary for freedom of choice are not always present, producers produce and consumers consume nealth and illth— goods and services that have a neutral effect and those that have a negative effect—as well as wealth—goods and services that promote well-being.  Some conditions restrict consumers’ freedom of choice, and other conditions promote it.  Wealth, Nealth, and Illth  Wealth:  Goods and services that promote the well-being of consumers (food, education, health care).  Nealth:  Goods and services that have a neutral effect, neither helping nor harming the consumer (bumper stickers).  Illth:  Goods and services that harm consumers (tobacco, prostitution, gambling).  Economic Freedom  Consumers have an implied right to choose the goods and services they want.  Positive economic freedom of choice:  The right to consume anything one wishes, and the purchasing power to do so.  Negative economic freedom of choice:  The lack of purchasing power to be able to exercise the right to consume anything one wishes.  Conditions Necessary for Freedom of Choice  Free entry  Full information  Some restrictions on freedom of choice  Price system  How Do You View It? Economic Freedom  How did you feel when you received your first pay check? Did you feel like you were free to buy anything you wanted?  How Do You View It? Restrictions on Economic Freedom  How did you feel when you realized there were some restrictions on your economic freedom?  Restrictions on Freedom of Choice  Natural restrictions  Economic restrictions  Government restrictions  Social restrictions  Physical and self-imposed restrictions  Social Restrictions  Group authority  Religious restrictions  Family restrictions  Discriminatory restrictions  How Do You View It? Restrictions on Freedom of Choice  Can you think of any time when being a member of a particular group restricted your freedom of choice?  Conditions Promoting Freedom of Choice  Political freedom  Economic freedom in a mixed economy  Equal Credit Opportunity Act  Prohibits any creditor from denying credit to a consumer on the basis of gender, marital status, color, race, religion, national origin, age, or receipt of public assistance.  Protects consumers when dealing with any creditor who regularly extends credit. Chapter 5  Fraud  Chapter Concepts  The nature of fraud makes it difficult to prosecute persons who are knowingly perpetrating fraud upon the consuming public.  The entire range of human wants presents opportunities for fraud, and unscrupulous sellers are eager to take advantage of them.  Deception and Fraud  Deception: The perversion of truth, most often—but not necessarily— intentional, that results in a person, having been misled, parting with something of value for something of little or no value.  Fraud: The intentional perversion of truth so as to induce another person to part with something of value.  Fraudulent Practices  Rip-offs:  Activities that are not in the best interest of consumers.  Price-fixing:  When businesses conspire to set prices higher than they would be if normal competition were at play.  Quackery:  Making a lot of noise about nothing; blatant self-promotion.  Common Areas of Fraud  Health and fitness  Beauty and cosmetics  Medical and surgical procedures  Automobile sales  Automobile repairs  Counterfeit products  Interstate land sales  Common Areas of Fraud (continued)  Education frauds  Employment frauds  Charitable and religious frauds  Fraud of older persons  Fraud of persons with low income  White-collar fraud  Internet fraud  How Do You View It? Fraud  Have you ever been approached by would-be sellers who struck you as suspicious? What was it about their pitch that tipped you off to the possibility of fraud?  How Do You View It? Fraud and College Students  To what common frauds do you think college students are particularly susceptible?  How Do You View It? Fraud and the Media  Do you think legitimate media outlets should be held responsible for fraudulent advertisements that appear in their pages / during their broadcasts?  Gimmicks in Automobile Sales  Bait-and-switch advertising  High-balling  Low-balling  Bushing  Packing  Double dipping  Incentives  Misusing credit information  Areas of Fraud in Education  “Degree mills”  Nonaccredited schools  Proprietary schools  Scholarship fraud  Fake scholarship organizations  High-pressure financial aid consulting firms  Areas of Fraud in Employment  Work-from-home opportunities  Pyramid franchising schemes  Referral selling  Magazine sales  Avoiding Charity Frauds  Make sure solicitors show identification for themselves and the charity.  Do not contribute to a charity you know nothing about.  Do not allow yourself to be pressured into making a contribution.  Ask for literature about the charity and check on its authenticity.  Avoiding Charity Frauds (continued)  Do not be fooled by impressive names or names that sound like another organization.  Find out how the charity benefits those for whom it is collecting funds.  Do not give cash.  Make a check payable to the organization, not an individual.  Check out the charity with a reputable charity rating organization.  How Frauds Are Perpetrated  Internet fraud  Mail fraud  Telemarketing schemes  Areas of Internet Fraud  Online auctions  Spamming  Phishing  Pharming  Avoiding Internet Fraud  Do research on the person, company, or seller.  Find out how complaints are handled; even if there are no complaints against the company, it still might not be legitimate.  Do not believe promises of easy money.  Read all the details.  Resist high-pressure tactics.  Avoiding Internet Fraud (continued)  Think twice about entering contests run by unfamiliar companies.  Be cautious of unsolicited email—delete without opening.  Beware of imposters.  Guard personal information; use credit cards.  Be cautious of downloading from websites you are not familiar with; be cautious of viruses.  Where to Go for Help  Better Business Bureaus,  Chamber of Commerce  Federal Trade Commission and other federal agencies  “Preventive consumerism”—do not place yourself in the position to be defrauded in the first place.  Preventive Consumerism  Work only with reputable, known companies.  Deal with local companies when possible.  Do not look for “impossible” deals.  Assert yourself.  Be wary of mail-order companies, telephone solicitors, and Internet offers, unless you are familiar with the company.  Report instances of fraud; do not keep quiet out of shame of being defrauded.  Fraudulent Buyers  Shoplifters  “Refund reapers”  CAN-SPAM Act  Attempts to control the sending of bulk commercial e-mail with false or misleading subject lines.  States that if pornographic content is involved, an appropriate warning label must be provided.  Can fine violators up to $250 per spam e-mail violation, and sentence violators to up to five years in prison. Chapter 6  Consumer Services  Chapter Concepts  The costs of services continue to spiral and increase in their percentage share of the consumer’s buying power.  Consumers can improve their position in the purchasing of services by accumulating as much buying knowledge as they can about services.  Careful shoppers of services are much more likely than careless shoppers to get the most value for their dollars.  Service Industry  Once a service is used, it has little or no monetary value.  Once a consumer purchases a service and the accommodation is offered, no resale and little refund potential remains.  Because of the infrequency of purchase, consumers may have little or no knowledge of how to select the service.  Credence good: consumers have difficulty assessing quality before, during, or even after use.  Services That Are Difficult to Assess and Potentially Costly  Automobile mechanics  Attorneys  Child care  Assisted living facilities  Financial planners  Health care  How Do You View It? Services—Going It Alone  Have you ever done your own car repair or financial planning, or sold your house by yourself?  Under what circumstances would you go it alone, without the help of a professional service provider?  Options in Automobile Repairs  Diagnostic center  Independent service center  Car dealership  Retail store auto service center  Specialty service center  How to Choose an Auto Mechanic  Recommendations  Competency  Costs  Diagnosis  Work order  How to Choose an Attorney  Seek recommendations  Determine competency  Determine costs  Hold a consultation  Research costs  Factors to Consider When Choosing Child Care  Licensing and accreditation  Costs  Child/adult ratio  Financial assistance  Health care services  Food services  Exercise  Safety  Transportation availability  Ancillary services  Policies, parents’ rights, etc.  Discipline  Infant care  Factors to Consider When Choosing Assisted Living Facilities  Licensing  Costs  Private-pay or Medicaid  Health care services  Exercise and rehabilitation  Safety  Activities program  Transportation availability  Ancillary services  Policies, residents’ rights, etc.  Food services  Types of Financial Planners  Financial planner  Financial counselor  Commission-only financial planner  Fee-and-commission financial planner  Fee-only financial planner  Factors to Consider When Choosing a Financial Planner  Credentials  Training and experience  Continuing education  Fees  Conflict of interest  The financial plan  Interaction  Factors to Consider When Choosing Health Care Providers  How much will it cost?  Can they arrange a payment schedule?  Do they accept your insurance?  What are office hours?  Who responds after hours?  Is someone else on call if the doctor is unavailable?  At what hospitals does the doctor have admitting privileges?  Will the doctor prescribe generic drugs?  Factors to Consider When Choosing Health Care Providers  Is service prompt and efficient?  Is the examination thorough?  Does the professional make you feel at ease?  Does the professional explain things clearly?  Does the professional suggest ways to keep costs down?  Is the office clean and well equipped?  How Do You View It? Evaluating Services  What are some reasons consumers may not properly evaluate the services they buy?  Eyeglass Rule  Requires eye doctors to make available to patients their eyeglass prescription, at no extra cost, immediately after an eye exam.  Allows for eye doctors to advertise eyewear and vision services—  Comparison shopping is possible  Increased competition may cause prices to go down


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