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

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 2

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 3

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

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 5

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 6

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 7

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 Source: The Federal Reserve Board, Monetary Policy, http://www.federalreserve.gov/policy.htm (accessed October 17, 2006). Fiscal policy 3-1 Inflation and Prices Slide 8

Setting Prices Prices are affected by Sellers want to set a price 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 9

Cost-Plus Pricing Price is set by considering The total cost of making and delivering the product A markup amount (also call profit margin) Cost-Plus Pricing for a Chair Wood $23.76 Labor 20.00 Paint and supplies 1.24 Indirect costs 12.00 Total cost 57.00 Markup (40%) 22.80 Price $79.80 3-2 Price and Demand Slide 10

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 A mall offers many stores at which to stop for the best prices. 3-2 Price and Demand Slide 11

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 12

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

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 14

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 This shopper is economizing and following a shopping list. 3-2 Price and Demand Slide 15

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

Buying Strategies Before you shop While you shop After you buy 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 17

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 Slide 18