Chapter 3
Your Purchasing Power
What Is Inflation?
• 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.
3-1 Inflation and the Value of Money
Slide 2
What Are the Types of Inflation?
• Disinflation occurs when the rate of
rising prices slows down.
• Reflation occurs when high prices are
followed by lower prices and then high
prices again.
• Hyperinflation is rapidly rising prices
that are out of control.
• Deflation is a decrease in prices.
3-1 Inflation and the Value of Money
Slide 3
What Are Causes and Effects of
Inflation?
Causes
• Demand-pull
• Cost-push
• Real-cost
Effects
• Higher employment rates
• Less spending
• Less saving
3-1 Inflation and the Value of Money
Slide 4
Focus On . . .
Fighting Inflation
• Monetary policy refers to the actions by the
Fed to stabilize the economy.
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 5
How Are Prices Set in a Market
Economy?
• Cost-recovery pricing is used to
recover R&D costs.
• Cost-plus pricing is calculated using
production costs plus a markup.
• Value-based pricing is based on
what consumers are willing to pay.
• Market-based pricing is set to be
competitive with similar products.
3-2 Prices and Consumer Choices
Slide 6
How Do Buying Strategies Affect
Prices?
• Rational buying
o Economizing is saving money and
spending only when necessary.
o Optimizing is getting the highest value
for money spent.
• Emotional buying
• Impulse buying
3-2 Prices and Consumer Choices
Slide 7
Success Skills
Time Management
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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.
3-2 Prices and Consumer Choices
Slide 8
What Are Selling Strategies?
Meeting demand
• Convenience
• Customer service
• The right product and
price
o Examples: meet
basic needs, offer
brand names, use
discount pricing
3-3 Getting More for Your Money
Slide 9
What Are Selling Strategies?
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.
3-3 Getting More for Your Money
Slide 10
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 11
Building Communications Skills
Creative Listening
• 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
Slide 12
What Are Consumer Rights?
Many laws protect consumers.
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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
3-4 Consumer Rights and Responsibilities
Slide 13
Sources of Consumer Protection
• Federal agencies
o Examples: USDA, FDA,
CPSC, FCC, FTC, FAA,
SEC
• State and local
assistance
• Private Organizations
o Examples: BBB, National
Consumers League,
Consumers Union
3-4 Consumer Rights and Responsibilities
Slide 14
How Are Consumers Defrauded?
Deception involves false or misleading
claims made about a product.
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Bait and switch
Fake sales
Low-balling
Pyramid schemes
Ponzi schemes
Pigeon drop
Infomercials
3-4 Consumer Rights and Responsibilities
Slide 15
How Can Consumers Protect
Themselves from Fraud?
• 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
3-4 Consumer Rights and Responsibilities
Slide 16