Chapter 6

Question 1

What increases business’s responsibility for product safety.

Answer 1

The complexity of an advanced economy and the necessary dependence of consumers on business to satisfy their many wants

Question 2

1916 MacPherson vs. Buick Motor Car case

Answer 2

• expanded the liability of manufacturers for injuries caused by defective products.
• Prior to that case, consumers could recover damages only from the retailer of the defective product.

Question 3

caveat emptor doctrine of consumer-seller relationship

Answer 3

let the buyer beware

Question 4

Due Care

Answer 4

• manufacturers have an obligation, above and beyond any contract, to exercise due care to prevent the consumer from being injured by defective products.
• The idea that consumers and sellers do not meet as equals and that the consumer’s interest are particularly vulnerable to being harmed by the manufacturer, who has knowledge and expertise the consumer does no have. -Replaced the older caveat emptor (let the buyer beware) doctrine.

Question 5

Strict Product liability

Answer 5

This holds the manufacturer responsible for injuries suffered as a result of defects in the product, regardless of whether the manufacturer was negligent

• Henningsen vs. Bloomfield Motors (1960).
• Greenman vs. Yuba Power Products (1963).

Question 6

Consumer Product Safety Act.

Answer 6

• It empowered the Consumer Product Safety Commission (CPSC) to protect the public against “unreasonable risks of injury associated with consumer products.”
• The CPSC aids consumers in evaluating product safety, develops uniform standards, gathers data, conducts research, and coordinates product safety laws (local, state, federal) and enforcement.

Question 7

US regulates fewer products on the grounds of safety, why?

Answer 7

they rely more on the tort system and the threat of private lawsuits to protect consumers and keep corporations in line.

Question 8

Economic costs of Safety regulations

Answer 8

benefit consumers but raise the price of products – critics worry that the expense is not always worth it

Question 9

Consumer choice on safety:

Answer 9

Consumers may dislike some mandated safety technology – but in other cases safety regulations may prevent individuals from choosing to purchase a riskier, though less expensive, product.

Question 10

Legal paternalism: def and 3 important comments

Answer 10

The idea that the law may justifiably be used to restrict the freedom of individuals for their own good. (i.e. seat belt requirement)

(1) Some product safety affects not just consumers who purchase products but also third parties.
(2) In the increasingly complex consumer world, the assumption that consumers know their own interests better than anyone else is doubtful.
(3) Paternalistic regulation may infringe individual autonomy but bring more gain in social welfare.

Question 11

Effective in forcing companies to take product safety seriously.

Answer 11

Regulatory agencies (FDA, CPSC) often succeed in protecting interests of consumers and stressing business responsibility but not always effective. The following are also effective:

1) Public opinion
2) media attention
3) pressure from consumer advocacy groups
4) the prospect of class-action lawsuits

Question 12

Automobile safety: The auto industry has a long and consistent history of what? .

Answer 12

Fighting against safety regulations,, ome examples:

(1) The industry successfully lobbied the federal government to delay the requirement that cars be equipped with air bags or automatic seat belts.
(2) In the late 1990s, the industry denied that car passengers are at a greater risk of serious injury or death caused by collisions with pickups or SUVS than with

Question 13

Protecting the consumer requires more than just obeying the law. It also requires business to:

Answer 13

(1) Give safety the priority warranted by the product.
(2) Abandon the misconception that accidents result solely from consumer misuse.
(3) Monitor closely the manufacturing process itself.
(4) Review the safety implications of their marketing and advertising strategies.
(5) Provide full details about product performance.
(6) Promptly investigate consumer complaints.

Question 14

Warranties (def and 2 types)

Answer 14

obligations for product quality and reliability that sellers assume. There are two kinds of warranty:

(1) Express: The claim that a seller explicitly states.
(2) Implicit: The claim, implicit in any sale, that a product is fit for its ordinary, intended use, called the implied warranty of merchantability – it’s not a promise that the product will be perfect but a guarantee that it will be of passable quality.

Question 15

Pricing: For many consumers, higher prices mean better products, so sellers …..

Answer 15

raise prices to give the impression of superior quality or exclusivity – but higher prices do not always mean better quality.

Question 16

Manipulative pricing

Answer 16

Consumers are misled by prices that conceal a product’s true cost – this trickery or manipulation raises moral questions about business’s view of itself and its role in the community.

Question 17

Price fixing: (def and 2 types)

Answer 17

The effort to control a given market and conspire to force consumers to pay artificially high prices. There are two kinds of price fixing:

(1) Horizontal: Occurs when competitors agree to adhere to a set price schedule (not to cut prices below a certain minimum, or to restrict price advertising or the terms of sales or discounts).
(2) Vertical: Takes place when manufactures and retailers, as opposed to direct competitors, agree to set prices.

Question 18

Price gouging:

Answer 18

A seller’s exploitation of a short-term situation by raising prices when buyers have few purchase options for a much-needed product.

Question 19

Labeling and packaging: Business is responsible to…

Answer 19

…provide accurate, clear, and understandable product information that meets consumer needs.

• Product labels often fail to do this.
• Package shape, terms, and quantity surcharges may also mislead shoppers.

Question 20

The goal of advertising:

Deceptive techniques:

Answer 20

• The goal of advertising: Advertising provides little useful information about goods and services, but has as its goal to persuade us to buy certain ones.
• Deceptive techniques: Providing frank product information is not always the most effective way to sell something – advertisers are tempted to misrepresent and deceive by exploiting ambiguity, concealing facts, exaggerating, and using psychological appeals.

Question 21

The Federal Trade Commission’s (FTC) role:

Answer 21

Created in 1914 as an antitrust weapon, it was expanded to include protecting consumers against deceptive advertising and fraudulent practices.

Question 22

reasonable-consumer standard vs.ignorant-consumer standard

Answer 22

• reasonable-consumer standard - entails protecting only reasonable people from deceptive advertising, gullible consumers would be unprotected.
• ignorant-consumer standard- prohibiting advertisements that can deceive anyone – if so, the FTC’s restrictions and caseload would expand.
• the FTC now follows a modified ignorant-consumer rule.

Question 23

Defenders of advertising (such as Harvard business professor Theodore Levitt) view

Answer 23

its imaginative, symbolic, and artistic content answer real human needs.

Question 24

Critics (such as John Kenneth Galbraith) say

Answer 24

that advertising manipulates those needs or even creates artificial ones.

Question 25

the dependence effect.

Answer 25

The same process that produces products also produces the demand for those products (the dependence effect).

Question 26

 Defenders of advertising say that it has three advantages:

Answer 26

• It is a necessary and desirable aspect of a free-market system.
• It is a protected form of free speech.
• It is a useful sponsor of the media, especially television.