Chapter 3

Your Purchasing Power

Page 76

Ch. 3 OBJECTIVES

• Explain inflation and how it is measured

• Understand types of inflation and how they affect consumers

• Describe methods of setting prices in a market economy

• Explain consumer’s buying strategies and how they affect demand and prices

Slide 2

Slide 33-1 Inflation and the Value of Money

• Inflation is an increase in prices for goods and services.

• Consumer Price Index (CPI) measures price changes over time.

• As inflation rises, the purchasing power of the dollar falls.

• C.O.L.A= Cost of living adjustment – Pay increases from employer to keep up with

inflation, keeps purchasing power equal

*ON TOP OF COLA, WORKERS

ARE OFTEN GIVEN MERIT RAISES

OR BONUSES – THESE INCREASE YOUR PURCHASING POWER.

Slide 4

Slide 5

What Are the Types of Inflation? SEE page 79

3-1 Inflation and the Value of Money

• Disinflation occurs when the rate of rising prices slows down.

Ex. swimsuits in winter• Reflation occurs when high prices are followed by lower prices

and then high prices again.

Ex. gasoline prices• Hyperinflation is rapidly rising prices that are out of control.

Ex: Not so much in US, but 50%-300% in other countries, especially following war

• Deflation is a decrease in prices.

Ex. computers, phones, dvd players

Slide 6

What Are Causes and Effects of Inflation? See page 81

3-1 Inflation and the Value of Money

Causes• Demand-pull – higher prices because consumers want more than available supply

• Cost-push-higher prices due to increased production costs

• Real-cost- higher prices due to scarce resources

•

What Are Causes and Effects of Inflation?

Effects• Higher employment rates – Mild inflation of 2-3% is said to be good for the economy• Less spending – loss of purchase power if pay raises do not keep up with inflation• Less saving – must use more of your disposable income to buy needed goods•Time value of money: a dollar

you receive in the future will be

worth less than you receive today

SEE PAGE 83 - CPI 20 year history in U.S. Slide 7

Slide 8

Focus On . . . Fighting Inflation

• Monetary policy refers to the

actions by the Fed to stabilize the economy. (Federal Reserve System – Central Bank of US,

created by Congress in 1913)o Fed controls the discount rate, federal funds

rate, and prime rate.• Fiscal policy refers to the actions by the federal

government to manage the economy. o Government raises/lowers taxes.

3-1 Inflation and the Value of Money

Slide 93-2 Prices and Consumer Choices

• Cost-recovery pricing is used to recover R&D costs.

• Cost-plus pricing is calculated using production costs plus a markup (a.k.a. profit margin or gross profit). See p.87

• Value-based pricing is based on what consumers are willing to pay.

• Market-based pricing is set to be competitive with similar products.

Slide 10

How Do Buying Strategies Affect Prices?

3-2 Prices and Consumer Choices

• Rational buyingo Economizing is saving money

and spending only when necessary.o Optimizing is getting the highest

value for money spent.• Emotional buying –purchasing products based on

desire rather than logic• Impulse buying – purchasing on spur of the moment

without any planning

Slide 11

What Are Selling Strategies?

Meeting demand• Convenience• Customer service• The right product and

priceo Examples: meet

basic needs, offer brand names, use discount pricing

3-3 Getting More for Your Money

Slide 12

What Are Selling Strategies?

3-3 Getting More for Your Money

Creating demand• Advertising is informing consumers about products

and encouraging them to buy.o Advertising sources: newspapers, magazines,

TV, radio, Internet, billboards, signs, direct sales

• The target audience is a specific group of people who are likely to buy.

Slide 13

What Are Consumer Buying Strategies?• Prepare a shopping list. • Do not let a salesperson influence you.• Stick to your list and avoid impulse buying.• Shop when you are most alert.• Comparison shop among several sellers.• Keep receipts, warranties, and packaging.

3-3 Getting More for Your Money

Slide 143-4 Consumer Rights and Responsibilities

Many laws protect consumers.• Consumer Bill of Rights• Airline Passenger Rights• Consumer Technology Bill of Rights• Patients’ Bill of Rights• Consumer Protection Laws

o Examples: Food, Drug, and Cosmetic Act; Hazardous Substances Act; Cigarette Labeling and Advertising Act; Nutrition Labeling and Education Act; FERPA; HIPAA

Slide 153-4 Consumer Rights and Responsibilities

• Federal agencieso Examples: USDA, FDA,

CPSC, FCC, FTC, FAA, SEC

• State and local assistance• Private Organizations

o Examples: BBB, National Consumers League, Consumers Union

Slide 163-4 Consumer Rights and Responsibilities

Deception involves false or misleading claims made about a product.

• Bait and switch• Fake sales• Low-balling• Pyramid schemes• Ponzi schemes• Pigeon drop• Infomercials

Slide 173-4 Consumer Rights and Responsibilities

• Shop smart• Be aware of prices• Understand sale

terminology• Compute unit prices• Read labels• Check packages

carefully

• Read contracts• Keep receipts and

warranties• Compute total cost• Research

businesses

Slide 183-2 Prices and Consumer Choices

Time Management• Be aware of how you are using your time.• Identify peak performance times.• Use a daily or weekly planner.• Keep a to-do list.• Prioritize your activities.• Break large projects into smaller parts.

• Do not rush important decisions.

Slide 19

Building Communications Skills

• Used to solve problems• Involves searching through information

and forming questions to ask• Listener evaluates what was heard• Listener reaches an informed decision or

choice

3-3 Getting More for Your Money

Creative Listening