Chapter 4: The Consumers in our Economy Flashcards
How should money be spent?
- trade off
- opportunity cost
What are the two sources of income?
- ownership of wealth
- income from work
What are four examples of ownership of wealth?
- intrest
- dividends
- rent
- capital gains
What are the two types of capital gains and explain them?
- long term: hold for more than a year and pay higher taxes
- short term: hold for less than a year and pay lower taxes
What is OWNERSHIP OF WEALTH?
assets - liabilities = net worth
What is INTEREST?
payment for using someone else’s money (capital)
What are DIVIDENDS?
payments made from the earnings of a corporation to its stockholders
What is RENT?
returned paid to those who supply the factors of production known as land
What are CAPITAL GAINS?
The return generated by the sale of and investment
What does the value of the things we own depend on?
- size of our income
- how wisely we spend our money
What is DISPOSABLE INCOME?
money that is left over after taxes (net pay)
What is DISCRETIONARY INCOME?
money we can spend as me please after bills
What is BUDGET?
A financial plan that summarizes income and expenditures over a period of time
What three things can a budget end up in…?
- deficit
- balance
- surplus
What is DEFICIT?
expenditures are greater than income
What is BALANCE?
income and expenditures are the same
What is SURPLUS?
expenditures are less than income
What is the proper order of a budget?
1) estimate income
2) set financial goals
3) plan expenditures
What is the importance of savings?
it protects against the loss of a job illness and the uncertainty of old age
What are the three considerations with investment?
- safety
- rate of return
- liquidity
What are two types of rates of return?
- compound interest
- annual interest
What is SAFTEY?
protection of your principle (no money lost)
What is RATE OF RETURN?
The amount of interest stated as a percent of the principle value of the investment
What is COMPOUND INTEREST?
interest that is computed and the amount of deposit and the amount that was previously paid (interest on principal + interest)
What is LIQUIDITY?
A measure of the ease with which you can convert your assets to cash
Where are the seven places people put their money?
- Passbook savings account
- A negotiable order of withdrawal (now)
- A money market account
- A certificate of deposit (cd)
- A credit union account
- A US savings bond
- A money market fund
What are the pros of a passbook savings account?
- safety of principal
- Liquidy
What is the con of a passbook savings account?
Low rate of return
What is a NEGOTIABLE ORDER OF WITHDRAW (NOW)?
interest bearing account on which the depositor can write checks
What is A MONEY MARKET ACCOUNT?
referred to the market for short term credit instruments
What is the difference between a treasury bill and a treasury bond?
Treasury Bill: loan to the government payable in less than one year
Treasury Bond: loan to the government payable in more than one year
What is a CERTIFICATE OF DEPOSIT (CD)?
- pays the highest rate of return offered by savings institution
- money must be left on deposit for specific period of time
- early withdrawal results from forfeiting all interest
What is A CREDIT UNION ACCOUNT?
- used by an association of people with something in common (ie teachers, unions, etc.)
- it pays a higher rate of return to depositors
- it charges less to borrow
What is a US SAVINGS BOND?
- a loan made to the US government
- it pays no yearly interest
- interest is added to the value of the bond until it matures
What is a MONEY MARKET FUND?
A mutual fund that uses the resources of their investors to buy money market certificates
What is a pro of a money market fund?
pay a higher rate of return
What is a con of a money market fund?
they are not insured by the Government
What is a CHECKING ACCOUNT?
A bank account against which the depositor can draw checks
What is a CHECK?
A written order directing a bank to pay a person a specific sum of money
What are two ways to endorse a check?
- blank endorsement
- restrictive endorsement
What is BLANK ENDORSEMENT?
transferred by simply signing your name on the back of checks
What is RESTRICTIVE ENDORSEMENT?
transferred by naming individuals entitled to receive the amount indicated on the check
What is CONSUMER CREDIT?
where customer is provided with cashing goods or services now with understanding that whatever is received will be paid for in the future
What is FINANCE CHARGE?
The total amount you pay to use credit
What is ANNUAL PERCENTAGE RATE (APR)?
percentage cost of credit calculated on an annual basis
What does insurance do?
it enables people to share risk
What is UNDERWRITING?
insurance companies calculate the odds of a particular event occurring than compute how much will need to be paid in light of that event
How are the number of people insured calculated?
- price of administration
- product quality
- expenses
- price of underwriting
- how much profit is wanted
What is PREMIUM?
how much you pay for insurance
What are the four types of insurance?
- life insurance
- health insurance
- property insurance
- liability insurance
What is LIFE INSURANCE?
it’s purpose is to provide money for a family went a wage earner dies
What is TERM INSURANCE?
- provides coverage of a specific period of time (1 yr, 5yr, or 10yr)
- least costly
- insurance ends with term
- can be renewed at a higher rate
What is WHOLE-LIFE INSURANCE?
Pay the same premium throughout your entire life
What is another name for whole-life insurance?
level premium
What is another name for level premium?
whole-life insurance
What are two advantages to having whole-life insurance?
it is both insurance and a savings account
What is an ENDOWMENT?
- protects for a specific number of years
- at the end of the years the full amount is paid to the policy holder
- if the policyholder dies before maturity date the money is paid to the beneficiary
What is HEALTH INSURANCE?
it’s purpose is to provide protection from the financial problems arising out of an accident or illness
What are the three types of medical insurance?
- basic coverage
- major medical
- catastrophic
What is BASIC COVERAGE INSURANCE?
pays all are part of the physician fees, hospital services, and surgical procedures
What is MAJOR MEDICAL?
protects against the expenses of additional care
What is CATASTROPHIC INSURANCE?
protects against the most serious kind of illnesses and accidents (long-term)
What is DISABILITY INCOME INSURANCE?
it is designed to provide cash payments well the wage earner is recovering
What are two advantages to group insurance is as opposed to individual?
- group is cheeper
- with a group you do not need a medical exam to qualify for the insurance
What is the HEALTH, MAINTENANCE , AND ORGANIZATIONAL INSURANCE?
- in exchange for a flat fee group members are entitled to unlimited visits to physicians and specialists
- typically charges a small fee (co-pay)
- stresses the importance of preventive healthcare
What are the three types of property insurance?
- home
- auto
- renters
What is LIABILITY INSURANCE?
protects us against the cost of injuries to others or damage to their property for which we are responsible
What does it mean when a liability case is taken on CONTINGENCY?
you can lose nothing if the case is lost but you split with the lawyers if the case is won
What are the three benefits of advertising?
- provide information on prices services in recent improvements
- could result in lower prices if massmarketing occurs
- stimulate competition
What are the two negatives of advertising?
- could be misleading
- higher prices
What is PUFFERY?
the use of slogans that sound great but mean little or nothing
What are the three advertising strategies?
- puffery
- rational appeal
- emotional appeal
What is RATIONAL APPEAL?
it relies upon logic to convince the consumers to buy products
What is EMOTIONAL APPEAL?
reliance on the use of psychology to get the advertisers message across
What are the three types of emotional appeal?
- testimonial
- bandwagon
- popularity
What is TESTIMONIAL APPEAL?
A famous person claims to use and enjoy a particular product
What is BANDWAGON APPEAL?
it suggest that everyone is using that particular product
What is POPULARITY APPEAL?
it suggests that by simply using a particular product you will become popular
What are the six agencies that work to help consumers?
- Office of consumer affairs (OCA)
- The consumer product safety commission (CPSC)
- The federal trade commission (FTC)
- The food and drug administration (FDA)
- The department of agriculture (USDA)
- The United States Postal Service
What is THE OFFICE OF CONSUMER AFFAIRS (OCA)?
works with the consumers in the business community who have marketplace problem
What is THE CONSUMER PRODUCT SAFTY COMMISSION (CPSC)?
protects the public against injury from consumer products
What is the FEDERAL TRADE COMMISSION (FTC)?
- enforces government antitrust legislation
- prevents the discrimination of false advertising
- enforces government consumer credit laws
What is the FOOD AND DRUG ADMINISTRATION (FDA)?
protects against unsafe food, drugs, and cosmetics
What is THE DEPARTMENT OF AGRICULTURE (USDA)?
- inspects and grades food products
- publishes information on how to get more for your food dollar
What is the POSTAL SERVICE?
protects against the misuse of mail by preventing fraudulent schemes
What is BUSINESS SELF REGULATION?
Business owners recognize that satisfied customers are the key to financial success
What are two agencies set up by businesses to help businesses?
- chamber of commers
- the better business burrow (bbb)
What is THE CHAMBER OF COMMERS?
an association of business people who promote interest of their community
What is THE BETTER BUSINESS BURROW (BBB)?
International organization that sets standards of business ethics
What are BUSINESS ETHICS?
concern for keeping fair business practice
What is GROSS NATIONAL PRODUCT?
The final market price of all goods and services produced
What does c + i + g equal and mean/ stand for?
it’s equals gross national product (gnp)
c- consumer spending
i- investment or business spending
g- government spending
What is CONSUMPTION?
The process of buying goods and services
What is ENGELS LAW?
as a family’s income increases the percent spent on a necessities decreases while the percent spent on luxuries increases
What is THE RULE OF 7/2?
money will double every 7 years
