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Role of Consumers in a Free Enterprise System. Chapter #6. Our Free Enterprise System. Section #6.1. Section Goals. Discuss the basic characteristics of the marketplace. List and describe the three basic components of a free enterprise system. Characteristics of the Marketplace.

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Role of Consumers in a Free Enterprise System

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section goals
Section Goals
  • Discuss the basic characteristics of the marketplace.
  • List and describe the three basic components of a free enterprise system.
characteristics of the marketplace
Characteristics of the Marketplace
  • In the United States, we live in a free enterprise system.
    • Free Enterprise:
      • An economic system in which producers and consumers are free to engage in business transactions with minimal government interference.
        • Producers:
          • The manufacturers or makers of goods and services for sale.
        • Consumers:
          • The buyers and users of goods and services.
  • A country’s economic system determines what the limited resources will be used to produce.
  • All economies face the problem of scarcity, because resources are limited but consumers wants are not.
    • Scarcity:
      • Limited resources for producing the products to satisfy the wants of consumers.
  • In a free enterprise system, consumers determine what products will be produced and at what prices.
  • To make a profit, producers must provide products consumers will buy.
supply and demand
Supply and Demand
  • The interaction of supply and demand determine what will be produced, in what quantities, and at what prices.
    • Supply:
      • The quantity of goods and services that producers are willing and able to provide.
    • Demand:
      • The willingness and ability of consumers to purchase goods and services at certain prices.
how supply and demand works
How Supply and Demand Works
  • The supply and demand system:
    • Increased demand creates a situation in which the supply of the product is not sufficient to satisfy all consumers who want to buy it.
    • The high prices bring large profits to producers.
    • Large profits prompt current producers to make more of the product and attract other producers to start providing the product, increasing supply.
    • Supply exceeds demand, and consumers can pick and choose.
    • Reducing prices, in turn, lowers profits, and producers begin to produce less.
    • Eventually, the product reaches the equilibrium price.
      • Equilibrium Price:
        • The price at which the quantity supplied equals the quantity demanded of the product.
consumer vs producer power
Consumer vs. Producer Power
  • Consumers have the ultimate power in a free enterprise system because they determine what is produced and at what price.
  • Producers have the power to influence buying decisions through advertising and other marketing strategies.
parts of a free enterprise system
Parts of a Free Enterprise System
  • To function smoothly, a free enterprise economy needs:
    • Competition:
      • The rivalry among sellers in the same market to win customers.
      • Monopoly:
        • A market with many buyers but only one seller.
      • Price-Fixing:
          • An illegal agreement among competitors to sell a good or service for a set price.
    • Purchasing Power:
      • The value of money, measured in the amount of goods and services that it can buy.
      • Transfer Payments:
        • Government grants to some citizens paid with money collected from other citizens, generally through taxes.
    • Informed Consumers
consumer problems

Consumer Problems

Section #6.2

section goals1
Section Goals
  • Describe deceptive practices used to defraud consumers.
  • Discuss how to be a responsible consumer.
fraudulent and deceptive marketing practices
Fraudulent and Deceptive Marketing Practices
  • The following practices all consumers should be aware of to protect themselves:
    • Bait-and-Switch
    • Fake Sales
    • Low-Balling
    • Pyramid Schemes
    • Pigeon Drop
    • Fraudulent Representation
    • Health and Medical Product Frauds
    • Infomercials
    • Internet Fraud
    • Telemarketing Fraud
bait and switch
Bait-and Switch
  • Bait-and-Switch schemes lure customers into the store with advertised bargains. Then salespeople try to switch customers to a more expensive product.
    • Bait-and-Switch:
      • An illegal sales technique in which a seller advertises a product with the intention of persuading consumes to buy a more expensive product.
fake sales
Fake Sales
  • Fake sales make customers think prices are reduced when they really aren’t.
    • Fake Sale:
      • When a merchant advertises a big sale but keeps the items at regular price or makes the price tags look like a price reduction when there actually is none.
low balling
  • Low-balling repair shops offer a repair at a low price, and then discover several other “necessary” services.
    • Low-Balling:
      • Advertising a service at an unusually low price to lure customers, and then attempting to persuade them that they need additional services.
pyramid schemes
Pyramid Schemes
  • Pyramid schemes depend on recruiting multiple levels of distributors.
    • Pyramid Scheme:
      • Illegal multilevel marketing plans that promise distributors commissions from their own sales and those of other distributors they recruit.
being a responsible consumer
Being a Responsible Consumer
  • In order to be a responsible consumer, do the following:
    • Identify deceptive practices
    • Shop smart
    • Stay informed
    • Seek redress
      • Redress:
        • A remedy to a problem.
shopping smart
Shopping Smart
  • Understand sale terminology
  • Avoid impulse buying
  • Plan your purchases
  • Compute unit prices
  • Read labels
  • Check containers carefully
  • Read contracts
  • Keep receipts and warranties
  • Compute total cost
  • Ask for references
  • Be loyal
  • Check up on businesses
  • Wait a day for major purchases.
staying informed
Staying Informed
  • Become familiar with sources of information on goods and services.
  • Read warranties and guarantees.
  • Read and understand care instructions before using a product.
  • Analyze advertisements about products before buying.
  • Know the protections offered by consumer protection laws.
  • Inform appropriate consumer protection agencies of fraudulent or unsafe performance of products and services.
  • Report wants, likes, and dislikes as well as suggested improvements and complaints to retailers and manufacturers.
  • Ryan, J.S. (2006). “Managing your personal finances; 5th ed.” Thomson South-Western; Mason, Ohio.