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

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 3

COLA (PAY INCREASE, NOT SODA:) 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 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? 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) 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. Government raises/lowers taxes. 3-1 Inflation and the Value of Money Slide 8

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 (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 Economizing is saving money and spending only when necessary. 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 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. 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? 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

What Are Consumer Rights? Many laws protect consumers. Consumer Bill of Rights Airline Passenger Rights Consumer Technology Bill of Rights Patients’ Bill of Rights Consumer Protection Laws 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

Sources of Consumer Protection Federal agencies Examples: USDA, FDA, CPSC, FCC, FTC, FAA, SEC State and local assistance Private Organizations Examples: BBB, National Consumers League, Consumers Union 3-4 Consumer Rights and Responsibilities Slide 15

How Are Consumers Defrauded? Page 106-107 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

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 17

Success Skills 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. 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