1. Chapter #6

2. Section #6.1

3. Discuss the basic characteristics of the marketplace. List and describe the three basic components of a free enterprise system.

4. 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.

5. 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.

6. 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.

7. 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.

8. 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.

9. 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

10. Section #6.2

11. Describe deceptive practices used to defraud consumers. Discuss how to be a responsible consumer.

12. 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

13. 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.

14. 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.

15. 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.

16. 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.

17. 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.

18. 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.

19. 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.

20. Ryan, J.S. (2006). “Managing your personal finances; 5 th ed.” Thomson South-Western; Mason, Ohio.