The Economy and

sricans in Action

Richard Hecker and Ruchit Shah met online and soon discovered that they shared an interest in business. The two high school students ultimately formed a multimillion-dollar company, called It is an advertising network that sells and serves banner space on a variety of Web sites. According to a 2001 article from Ruchit, a resident of Charlotte, North Carolina, from an early age "displayed an Intense Interest In the Internet and ways of doing business on the Net. Looking back, Shah credits his parents with his success: 'A person can only be as remarkable as the people around him. which are my parents, my friends and my little brother Rlshl. I couldn't have done it without them. I really have to thank them and my teachers.'" For his part, Hecker discounts the Idea that being so young is a liability in the business world. He says, "As long as we provide results, age doesn't matter."

Richard Hecker

Consumer Rights and Responsibilities

The American free enterprise system bestows numerous economic rights and protections on individuals like vou5 your teachers, your relatives, and your friends. You have the right to enter into just about any profession or enterprise you are interested in, just as Ruchit Shah and Richard Hecker did. You have chc right to buy those products and brands that you like and to reject the others.

In earlier chapters, you discovered that with every right comes certain responsibilities. In the same way, our rights as consumers require some responsibility on our part. We should find out as much as we can about the products we buy so that we can recognize good quality. We should also find out where we can get the best value for our money. We cannot always rely on stores and businesses to protect us. We must take steps to protect ourselves.


Protecting Consumer Rights

Throughout much of history, consumer rights could be summed up in one Latin phrase: caveat emptor, or "let the buyer beware." In this section, you will learn how consumcrism, a movement to educate buyers about the purchases they make and to demand better and safer products Jrom manufacturers, affects you personally.

Congress has passed a number of laws over the years that protect consumer rights. Many of these laws involve labeling. For example, the Fair Packaging and Labeling Act requires that every package have a label ide lit ¡lying its contents and how much it weighs. Many private groups and organizations have taken on the task of protecting individual consumers. One of the oldest of these consumer groups is the Better Business Bureau. Surprisingly, business groups rather than consumers run these organizations. These businesspeople recognize that the key to success lies in earning the trust of their customers.

Consumer Bill of Rights

In the 1960s, a special effort was made to strengthen the consumers' voice. President John F. Kennedy and, later, President Richard Nixon emphasized five major rights of consumers.

♦ Consumers have the right to a safe product—one that will not harm their health or lives.

♦ Consumers have the right 10 be informed for protection against fraudulent, deceitful, or grossly misleading information and to be given the facts needed to make informed choices.

♦ Consumers have the light to choose—to have available a variety of products and services at competitive prices,

■ Consumers have the right to be heard the guarantee that consumer interests will be listened to when laws are being written.

♦ Consumers have the right to redress—the ability to obtain from the manufacturers adequate payment if their product causes financial or physical damage.

Consumer Responsibilities

If a product or service is faulty, it is the consumer's responsibility to begin the problem-solving process. If it happens to you, you should report the problem immediately. Do not try to fîx a product yourself, because doing so may cancel the warranty, the promise made by a manufacturer or a seller to repair or replace a product within a certain time period if it is

Rights and Responsibilities When you buy something, you have a right to expect quality and a responsibility to recognize it. What are other consumer rights and responsibilities?


The Law and You

An Appearance in Small Claims Court

Javier purchased a radio/CD player. Ten days later it stopped working. The store refused to exchange it for anoLher one. so Javier brought his cornplainl lo small claims court. Javier has lhe receipt and Lhe hroken radio/CD player as evidence. The lav/ requires that all new items include an implied promise lhal Lhey can do what they are supposed to do for a reasonable length of time. In small claims court, the proceedings went as follows: Judge: "BoLh sides should be given an opportunity to present, their case with the supporL of lheir witnesses. I will then make mv decision.'

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Witness Statements

Javier: 'I really wanted a radio/CD player and t.he salesperson talked me into this model. When it didn't work I went back Lo lhe sLore. buL Lhe salesperson would not take it back. I have the evidence and I want my money back!" Ruby (Javier's moLher): "Javier was exciled aboul his purchase and upsel when il didn'l work. We thought the store would give us a credit, so soon after the purchase. They must not have very good merchandise. Javier earned Lhis money and deserves to have a good product." Tyrone (Salesperson): *l sold the radio/CD player and, of course, I thought it worked. Why wouldn't iLwork if iLwas sLill in Lhe original card-hoard box—right from the factory? I think Javier broke it.*

Hattie (Slore manager): "We haven't had any complaints about this model. We accept returns wit.hin 5 days in the original hox. Otherwise, we would have been happy to give him a credit—our customers are imporlanL Lo us."


How should Lhe judge decide Lhe case? In a brief report., make a decision on this case and give your reasons tor it.

faulty. State the problem and suggest a fair solution.

Another responsibility of consumers is to exhibit ethical behavior by respecting the rights of producers and sellers. For example, a responsible consumer will not try to return a used item because it has been advertised elsewhere for a lower price.

iH«:* summarizing What is the purpose of better business bureaus?

Your Role as a Consumer

Your role as a consumer depends on your available income and how much of it you choose to spend or save. Income can be both disposable and discretionary.

Uses of Income

Disposable income is the money income a person has left after all the taxes on it have been paid. People spend their disposable income on many kinds of goods and services. l'irst, they generally buy the necessities of living: food, clothing, and housing. Discretionary income is money left over after paying for these necessities. This income can be used for satisfying wants, such as purchasing luxury items.

The purchases you make may be made in cash, charged to a charge accounc, or paid with a credit card. A chargc account is a line of credit that a particular store extends to its regular customers. Banks and some businesses issue credit cards. A person may use a credit card in any business that accepts the card. The business collects the purchased price from the credit card issuer, which sends a monthly bill to the cardholder.'1 "he cardholder may pay the bill all at once or in installments. T.ate payment may result in additional charges. Late charges are figured on a percentage of the amount owed.

Regardless of the size of a person's income, spending that income requires constant decision making. As a consumer, cach person has a series of choices to make.

Decision Making

Virtually all of the steps in decision making involve an opportunity cost. Remember that opportunity cost is the value of your highest alternative choice that you did not make. Suppose a friend recently purchased athletic shoes. You like them, and you want to buy a pair for yourself. Before you do, however, ask yourself, "What can't I buy or do, if I buy the shoes?" In other words, you have to decide if the shoes are worth what you would give up to buy diem.

What Are Your Goals?

It is also important to consider your goals when you make buying decisions. Just as the federal government does, you should create your own personal budget. Suppose you work on weekends to save money for a new computer. You see many things that you would like to buy now—new clothes, magazines and books, and so on. If you buy these things, you will find it harder to accomplish your long-term goal. What option do you choose?

You could buy what you want now and reduce, or postpone, the chances of buying the computer or buy less of what you want now and increase the chances of buying Che computer.

Saving for the Future

One way to help you reach your long-term purchasing goals is to save. Saving is to set aside a portion of income for a period of time so that it can be used later. It is that part of your income that you don't spend.

Saving money can be a difficult habit to establish. Some people feel they should enjoy every penny they earn. As a result, they spend their money as quickly as it comes in. There are, however* many good reasons for saving. Most people cannot make major purchases, such as a car or a house, without putting aside money to help pay tor them. Saving also comes in handy in emergencies.

When an individual saves, the economy as a whole benefits. Saving provides money for others to invest or spend. Saving also allows businesses co expand, which provides increased income for consumers and raises the standard of living.

Saving Regularly

To make it easier tor people to save, most employers withhold a fixed amount from employees' paychecks.This money is automatically deposited into participating employees' savings accounts. Many people, however, handle the responsibility

A passbook savings account is a booklet in which deposits, withdrawals, and Interest payments are recorded.

Economics and You

Public Disclosure

The government helps ci Likens make informed purchases through the use of public disclosure— the requirement that businesses reveal certain information about Iheir products or services Lo the public. The Food and Drug Administration, for example, requires food companies to put lahels on oans and other containers. Pick a product that you use often. ReporL on any in formation or warnings on the labels or containers.

themselves. F.ach week or months they budget a specific amount of money to put aside for savings.

Generally, when people think of saving they think of putting their fundi in a savings hank or a similar financial institution where it will earn interest. Interest is the payment people receive when they lend, money or allow someone else to use their money. A person receives interest at periodic intervals on his or her savings for as long as funds are in the account.

Deciding About Your Savings

Like every other activity, saving involves a trade-off. The more you save today, the more you can buy a year from now, 10 years from now, or 30 years from now. Saving increases a person's future purchasing power. You will, however, have less to spend today. Deciding how much to save depends oil your answer to several questions: How much do you spend on your everyday expenses? What arc your primary reasons for saving? How much interest can you earn on your savings and, therefore, how fast will your savings grow? How much income do you think you will be earning in the future?

If you expect co make a much higher income tomorrow, you have less reason to save a large percentage of today's income. When you are self-supporting and have more responsibilities, you will probably save for other reasons, such as having funds in case of emergencies and for your retirement. It is a good idea, however, to have some sort of savings plan.

Defining What is discretionary income?


Checking for Understanding

1. Key Terms Use each of the following terms in a sentence that will help explain its meaning: consumerism, warranty, ethical behavior, disposable income, discretionary income, saving, interest.

Reviewing Main Ideas

2. Summarize Whal privale and federal help can you receive as a consumer?

3. Explain What kinds of products are purchased with disposable income?

Critical Thinking

4. Making Generalizations Why do some people buy brand-name products and other people buy generic products?

5. Synthesizing Information On a oh art like the one below, develop a checklist of three rules for making an importanl purchase.

Vly Checklist

Analyzing Visuals

6. Interpret Look aL Lhe cartoon on page 431. Are the goods being purchased necessities (needs) or are they discretionary (wants)? Explain.


7. Compare SelecL a producL you use every day: toothpaste or a hair dryer, for example. Do some comparison shopping by finding at least three separate locations that sell this product. What were Lhe differences in price for lhe product?

Critical Thinking r c

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Predicting Consequences

Why Learn This Skill?

What should I do? You answer this question every time you choose a course of action. Every time you act, you get results. These results are the consequences of your action. Of course, you want the consequences to be all that you had hoped for with no unpleasant surprises. The way to avoid unpleasant surprises is to predict the consequences before you act. Predicting consequences may prevent you from having to ask. "Why did I do that?"

Learning tHe Skill

To predict the consequences of an action, follow these steps:

• Clarify the issue or situation. Form a statement or a question that clearly states the decision that needs to be made.

♦ Identify the options and analyze patterns.

♦ Predict the possible consequences of each option.

Practicing the Skill

On a separate sheet of paper, predict one or more possible consequences of the options listed below.

From his monthly job earnings of $150, Joseph has saved $575 toward the future purchase of a computer costing $850. He wartfs a computer now, however, to do online research for two lengthy reports due in ti)ree weeks. Wf)at is the most satisfactory way for Joseph to acquire the use of a computer?

Option 1. Work nighttime hours stocking groceries for two months to earn the additional $275 needed to buy the computer.

A job can help teens reach their goals.

Option 2. Use the $575 as a down payment and make monthly credit payments of $35 for the next 12 months. Option 3. Spend $500 for a rebuilt computer that carries no warranty.

Based on the consequences you have listed, which action would you choose? Explain.

—Applying the Skill-

Suppose you receive a gift of $300 to save for your education after high school. How should you invest the money? List the op Lions you rnighi have. Beside each op Lion, list the predicted consequences. Use your predictions to select die most suitable course ol" action.

Pfciclicf? key skills wilh Gl«hoop's Skillbuilder Interactive Workbook CD-ROM, Level 1.

Pfciclicf? key skills wilh Gl«hoop's Skillbuilder Interactive Workbook CD-ROM, Level 1.

Chapter 19 The American Economy CONTENTS 1

Chapter 19 The American Economy CONTENTS 1

Assessment & Activities fievlL't* hi Lsms\

Section 2

• Productivity relates to the efficient use of resources.

■ Productivity tends to go up when workers specialize in the things they do best.

Section 3

•The economic system of the United States is based on capitalism and free enterprise. ♦ Important characteristics are markets, economic freedom, competition, private property rights, the profit motive, and voluntary exchange.

Section 4

♦ Consumer advocates promote the following consumer rights: the right to safety, to be informed, to choose, to be heard, and to redress.


Using Your Foldables Study Organizer

Use your completed foldable to explain, in a brief essay, how you fit into the circular flow of economic activity.

Reviewing Key Terms

Choose the key term from the chapter that best matches each clue below.

1. natural resources, labor, capital, and entrepreneurs used to produce goods and services

2. the amount of goods and services produced from a given level of inputs

3. a transaction in which a buyer and seller work out their own terms of exchange

4. role of consumer as ruler of the market when determining goods and services produced

5. the use of resources by an individual, a firm, a region, or a nation to produce one or a few goods and services

Reviewing Main Ideas

6. What factors of production are required to produce the things that people use?

7. What are goods?

8. What are services?

9. What is the difference between a final good and an intermediate good?

10. What is the term for breaking down a job into numerous, separate tasks?

11. What does the idea of consumer sovereignty express?

12. What is voluntary exchange?

13. What is the drive to improve your material well-being called?

14. What is a warranty?

15. What is the income after taxes used to buy the necessities of living called?

ie. What is interest?

Critical Thinking

17. Categorizing Information Describe how either you or a relative of yours who has a job fits into the circular flow model. Be sure to discuss both the factor and product markets.

Section 1

• The four factors of production are natural resources, labor, capital, and entrepreneurs.

■ The factors of production provide the means for a society to produce its goods and services.

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18. Understanding Cause and Effect Define the meaning of the division of labor and explain how it improves the efficiency of production.

19. Understanding Cause and Effect Copy the following diagram onto a separate sheet of paper. Use upward, downward, or horizontal arrows to show what would happen to the size of the boxes in situations Ar B, and C.



Self-Check Quiz Visit the Civics Today Web site at :orr and click en Self-Check Quizzes— Chapter 19 to prepare for the chapter tost.

* cmzttoimr COOetflATtVE ACTIVITY *

22. With a partner, find at least two examples of capital goods that are used in your school to provide the service of education. Would productivity go up or down if these capital goods were not available to your school? Explain why or why not.

a. You receive a pay raise.

b. You cut energy expenses.

c. Wanting to graduate from college sooner rather than later, you leave your full-time job for a lower-paid, part-time position.

Practicing Skills

20. Predicting Consequences Suppose that your government wanted to make health care more affordable for everyone. To do this, state legislators put a series of price controls in place that cut the cost of medical services in half. What would happen to the demand for medical services at the new, lower price? What would happen to the supply of medical services that doctors would be willing to provide at the newr lower price? Where do you think new doctors would prefer to set up practice? Explain the reasons for your answers.

^¡J Economics Activity

21. Choose a product that you use frequently. Research to find the answers to these questions regarding how the product is produced.

♦ What natural resources were used?

♦ What types of skills did the workers need?

• What types of tools were used?

• Is the firm that made the product large? What other products does it produce?

Analyzing Visuals

23. Study the chart on page 426. What does the figure show? What two categories of economic products are shown?

Era Technology Activity

24. Using a search engine on the Internet, find and research an entrepreneur. Explain what benefits were brought to society by this person's risk taking.

Test Practice

Directions: Choose the best answer to the following question.

Which of the following statements about Gross Domestic Product is NOT true? A It includes intermediate goods. B It includes services as well as goods. C It is based on dollar value. D It includes final goods.

Test-Taking Tip

Read the question carefully. When a question uses the word not or except. you need to look for the answer that does not fit.

Chapter 19 The American Economy 445

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