Chapter 3 Your Purchasing Power Page 76
Jan 12, 2016
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