Topic 5- The Consumer

Question 1

a contract

Answer 1

a legally valid agreement between 2+ parties where an offer is made and its terms and conditions are accepted

Question 2

3 ways to reach an agreement

Answer 2

1. oral eg. conversation
2. silent eg. accept without dispute
3. written eg. agreement in writing with signatures

Question 3

5 requirements for a binding contract

Answer 3

1. all parties must consent to the offer and acceptance
2. the agreement cannot be illegal
3. agreement and consent must be voluntary
4. it must be possible to perform the contractual obligations
5. all parties must have capacity to contract (eg be 18yrs+)

Question 4

breach of contract

Answer 4

when one party fails to perform obligations specified in the contract

Question 5

3 consequences of a breach of contract

Answer 5

1. contract can be cancelled
2. a fine or jail sentence may imposed by the court
3. guilty party can be sued for damages

Question 6

3 types of contracts

Answer 6

1. insurance policies
2. leases
3. credit agreements

Question 7

employment contract

Answer 7

• agreement between employer and employee
• terms and conditions are legally binding
• protects both parties in terms of contractual obligations
• contract must be signed by employer, employee and 2 witnesses

Question 8

an insurance policy

Answer 8

• agreement between a consumer and an insurance company
• insurance company will compensate consumer in case of loss or damage to insured goods
• consumer pays monthly premium to insurer

Question 9

a credit agreement

Answer 9

• contact between the consumer and credit provider
• consumer is offered a loan to buy goods on credit and pays the full amount plus interest in the form of monthly installments over a fixed period to the credit provider

Question 10

2 examples of credit agreements

Answer 10

1. mortgage (home loan) : money is borrowed from bank to buy a property and paid back over fixed period (20-30 years)
2. hire-purchase : consumer pays a deposit and takes goods, then pays monthly installments until goods are fully paid for

Question 11

a lease

Answer 11

• an agreement between an owner and a tenant
• tenant takes on the lease of the property for period with fixed rent
• lease specifies conditions, rights and obligations of both parties

Question 12

purchase and sale agreement

Answer 12

• legal contract between seller and buyer of a property
• offer to purchase becomes a legal purchase and sale agreement after the offer is accepted and signed
• buyer and seller must then comply with terms and conditions in contract

Question 13

business contract

Answer 13

between parties wanting to start a business

Question 14

cooling off period

Answer 14

• results from direct marketing
• 5 day period after signing a contract within which consumer can change their mind and cancel the contract without penalty
• supplier must return payments to consumer within 15 days of cancellation
• goods must be returned to supplier

Question 15

exclusion clauses

Answer 15

contract provisions in which a party’s liability is limited if they do not fulfill their contractual obligations

Question 16

unfair business practices

Answer 16

includes unfair, unreasonable or unjust treatment of the consumer by a supplier

examples:
1. high and unreasonable prices for goods and services
2. false advertising
3. committing fraud

Question 17

a warranty

Answer 17

seller’s written promise that a product is reliable and free of defects
if a product breaks or becomes faulty it will be repaired or replaced

Question 18

a guarantee

Answer 18

manufacturer’s written promise that the quality and durability of a product will comply with certain standards for a given length of time
if not, money will be refunded

Question 19

grey goods

Answer 19

-articles sold without manufacturers’ permission
- not illegal
import duties ARE paid

Question 20

scams

Answer 20

• false and dishonest business transactions
• often linked to organised crime
• scammers make use of email, telephone, SMS
• anyone is targeted

Question 21

internet scams

Answer 21

scammers advertise something for sale on internet that may not exist, victim pays

Question 22

lottery scams

Answer 22

victim believes they won a large sum of money, sends bank details to gain access to it
sometimes a deposit is insisted upon to gain the money

Question 23

phishing

Answer 23

person receives email supposedly from bank requesting them to log in and verify personal details, information is stolen, can lead to identity theft

Question 24

credit card cloning

Answer 24

cards are inserted into ATM, magnetic strip is copied

Question 25

stokvels

Answer 25

- savings club - members contribute fixed amount of money to a central fund on a regular basis - all members can withdraw from the fund - each month/year a different person takes a turn to use the money

Question 26

pyramid schemes

Answer 26

- unsustainable business model in which members are paid to recruit new members - get rich quick moneymaking scheme - promises high return on investments to members - illegal in SA

Question 27

multilevel marketing schemes

Answer 27

- similar to pyramid schemes - companies sell products - makes use of direct marketing - sales agents receive part of sales income - is legal in SA

Question 28

taxes

Answer 28

- paid to South African Revenue of Service - source of income for gov - used to fund social programmes and public services

Question 29

tax evasion

Answer 29

when tax payers use illegal methods to reduce tax liabilities

Question 30

tax avoidance

Answer 30

when taxpayers use legal methods and good financial planning to reduce their tax burden

Question 31

direct taxation

Answer 31

people should contribute to the wealth of the state in the same measure that they contribute to their own wealth

Question 32

income tax

Answer 32

- levied on all income and profit received by a taxpayer - main revenue for state - paid in form of PAYE and provisional tax

Question 33

pay as you earn

Answer 33

- tax that employer subtracts from employee's income and pays to SARS - tax is collected as income is earned

Question 34

provisional tax

Answer 34

- paid by people with irregular income - paid in 2 amounts, middle and end of year - based on estimated income of taxpayer based on income of previous year

Question 35

capital gains tax

Answer 35

tax pained on profit made when an asset is sold

Question 36

property tax

Answer 36

- paid by homeowners to the municipality - amount is calculated according to value and location of property - money is used by municipality to provide infrastructure for services in communities

Question 37

transfer duty

Answer 37

- tax levied on all property transactions - paid when property is registered in buyer's name - amount paid is based on purchase price

Question 38

estate duty

Answer 38

tax payable on a person's estate after their death

Question 39

indirect taxation

Answer 39

hidden tax in the price of goods and services, consumer is not always aware of this

Question 40

value-added tax

Answer 40

- all consumers pay - levied at 14% - included in prices of goods and services - paid to the state - some gods are exempt

Question 41

5 food items exempt from VAT

Answer 41

1. brown bread 2. raw eggs 3. fresh fruit and veg 4. samp 5. lentils

Question 42

excise duties and levies (sin tax)

Answer 42

-mainly imposed on non-essential articles

Question 43

5 examples of articles on which sin tax is imposed

Answer 43

1. petrol 2. tobacco 3. alcohol 4. electronics 5. perfume

Question 44

customs duties

Answer 44

- levelled on all goods entering the country | - importer pays duties to the state and recovers it afterwards through sales to customers

Question 45

interest rates

Answer 45

- expressed as a percentage of the full amount owed | - not fixed

Question 46

repo rate

Answer 46

interest paid to the Reserve Bank

Question 47

fixed interest rates

Answer 47

applies to a loan when interest remains the same for full period

Question 48

variable interest rates

Answer 48

applies to a loan where interest rates fluctuate as bank's interest rates changes

Question 49

inflation

Answer 49

continuous increase in the prices of goods and services that brings about a decrease in the purchasing power of money

Question 50

inflation rate

Answer 50

- the percentage at which the prices of goods and services increase in a year - calculated with the help of the consumer price index - expressed as an annual rate - annual percentage change of the CPI

Question 51

consumer price index (CPI)

Answer 51

- instrument used to calculate price increases and the inflation rate - show the change in cost of a hypothetical basket of goods and services

Question 52

3 consequences of inflation

Answer 52

1. petrol price increases 2. food price increases 3. unemployment