Copyright 2007 Thomson South-Western Chapter 3 Income and Purchasing Power

Slide 2 Inflation Is an increase in the general level of prices for goods and services Is measured by the U.S. government using the Consumer Price Index (CPI) Has several variations –Disinflation –Reflation –Hyperinflation 3-1 Inflation and Prices

Slide 3 Deflation Is a decrease in the general level of prices for goods and services Is the opposite of inflation Happens when –Events cause consumers to buy less –Producers are able and willing to provide goods at lower prices 3-1 Inflation and Prices

Slide 4 Causes of Inflation Demand-pull inflation Cost-push inflation Real-cost inflation 3-1 Inflation and Prices Demand-pull inflation occurs when consumers want to buy more goods than producers supply.

Slide 5 Inflation and Employment High inflation often means high employment rates Low inflation often means low employment rates Mild inflation of 2 or 3 percent can be good for the economy 3-1 Inflation and Prices

Slide 6 In Times of Inflation Workers with fixed pay rates may be able to buy less Consumers must spend more to meet needs and may be able to save or invest less A dollar received in the future is worth less than a dollar received today (time value of money ) 3-1 Inflation and Prices

Slide 7 Ethics A Full Day’s Work for a Full Day’s Pay Ethical behavior requires workers to provide a full day’s work for a full day’s pay This behavior can lead to positive job ratings or promotions Poor work habits can lead to poor job ratings or dismissal 3-1 Inflation and Prices

Slide 8 Focus on... The Fed The Federal Reserve System uses tools to manage the effects of rising prices Monetary policy –Discount rate –Federal funds rate –Prime rate 3-1 Inflation and Prices Source: The Federal Reserve Board, Monetary Policy, (accessed October 17, 2006). Fiscal policy

Slide 9 Setting Prices Prices are affected by –Producers –Consumers –Market forces Sellers want to set a price –That will support the greatest demand –That will be profitable 3-2 Price and Demand

Slide 10 Cost-Plus Pricing Price is set by considering –The total cost of making and delivering the product –A markup amount (also call profit margin) 3-2 Price and Demand Cost-Plus Pricing for a Chair Wood$23.76 Labor20.00 Paint and supplies1.24 Indirect costs12.00 Total cost57.00 Markup (40%)22.80 Price$79.80

Slide 11 Value-Based Pricing Price is set by considering how much consumers will be willing to pay Companies often do market research to help in setting prices 3-2 Price and Demand A mall offers many stores at which to stop for the best prices.

Slide 12 Market-Based Pricing Price is set to be competitive with prices of similar products Companies may set a higher price for products with new features Unique products that cannot be bought elsewhere may command higher prices 3-2 Price and Demand

Slide 13 Buying Strategies Affect Demand Economizing –Saving as much as possible –Spending money only when necessary Optimizing –Getting the highest value for the money spent 3-2 Price and Demand Taking advantage of sale prices is an example of optimizing.

Slide 14 Technology Corner Buying Online Many retail Web sites are available Full descriptions of products are provided Shoppers can set up accounts Payments are made with debit or credit cards or other electronic means 3-2 Price and Demand

Slide 15 Success Skills Time Management Using time management strategies can help you be more productive Scheduling time to plan purchases can help you make better buying decisions 3-2 Price and Demand This shopper is economizing and following a shopping list.

Slide 16 Selling Goods and Services Sellers use various strategies –Convenience –Customer service –Meeting needs and wants –Creating demand through advertising 3-3 Selling and Buying Strategies PR Newswire HOLTON, TEITELMAN AND GURY ADVERTISING

Slide 17 Buying Strategies Before you shop –Prepare a list of needed items –Decide how much to spend While you shop –Compare prices –Do not make last-minute purchase decisions After you buy –Keep receipts and warranties –Inspect the product and evaluate the purchase 3-3 Selling and Buying Strategies

Slide 18 Building Communications Skills Creative Listening Is a skill used to solve problems Involves the listener evaluating what has been heard and making a decision Involves logic as well as listening 3-3 Selling and Buying Strategies