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
• 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 3
• 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
What Are the Types of Inflation?
SEE page 79
• 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
3-1 Inflation and the Value of Money
Slide 5
What Are Causes and Effects of
Inflation? See page 81
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
•
3-1 Inflation and the Value of Money
Slide 6
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
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 8
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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.
3-2 Prices and Consumer Choices
Slide 9
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 –purchasing products based on
desire rather than logic
• Impulse buying – purchasing on spur of the moment
without any planning
3-2 Prices and Consumer Choices
Slide 10
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 11
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 12
What Are Consumer Buying
Strategies?
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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 13
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
3-4 Consumer Rights and Responsibilities
Slide 14
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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 15
Deception involves false or misleading claims
made about a product.
• Bait and switch
• Fake sales
• Low-balling
• Pyramid schemes
• Ponzi schemes
• Pigeon drop
• Infomercials
3-4 Consumer Rights and Responsibilities
Slide 16
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Shop smart
Be aware of prices
Understand sale
terminology
Compute unit prices
Read labels
Check packages
carefully
3-4 Consumer Rights and Responsibilities
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Read contracts
Keep receipts and
warranties
Compute total cost
Research
businesses
Slide 17
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 18
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 19