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

2. 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) 3-1 Inflation and Prices

3. Slide 3 Inflation - Has several variations –Disinflation- prices are rising but slowly example: Seasonal products. Swimsuits prices are high and rising in the spring and summer and in the fall and winter the prices are rising but really slowly. 3-1 Inflation and Prices

4. Slide 4 Inflation - Has several variations –Reflation – Prices are high but then drop due to lower demand. Example crude oil prices. Also happens when people stop buying big cars and trucks due to oil prices then start buying when oil prices go down. 3-1 Inflation and Prices

5. Slide 5 Inflation - Has several variations –Hyperinflation – typically it is higher than 10% increase…50% or higher. People stock up because they are afraid the price is going to sore. 3-1 Inflation and Prices

6. Slide 6 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

7. Slide 7 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.

8. Slide 8 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

9. Slide 9 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

10. Slide 10 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

11. Slide 11 Focus on... The Fed The Federal Reserve System is the central bank in the US and 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, http://www.federalreserve.gov/policy.htm (accessed October 17, 2006). Fiscal policy

12. Slide 12 3-1 Inflation and Prices Click here to take the Ch. 3 Quiz

13. Slide 13 Section 2: 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

14. Slide 14 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

15. Slide 15 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 shop for the best prices.

16. Slide 16 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 In a Market Economy, setting a price too low may make consumers think the product has low value. 3-2 Price and Demand

17. Slide 17 Marketing Mix A group of products or services offered for sale by a business at any point in time.

18. Slide 18 Buying Strategies Affect Demand Economizing –Saving as much as possible –Spending money only when necessary Optimizing –Getting the highest value for the money spent –Can lead to overspending 3-2 Price and Demand Taking advantage of sale prices is an example of optimizing.

19. Slide 19 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 May use cookies to track Web pages that users visit Banner ads are used for grab the readers attention 3-2 Price and Demand

20. Slide 20 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.

21. Slide 21 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

22. Slide 22 Direct vs. Indirect Advertising Example of direct advertising: –Door-to-door sales – this is direct advertising because it targets consumers directly Example of indirect advertising: –TV shows/movies that feature products – this in indirect because you are just watching the show but they throw in the products and hope that you notice them

23. Slide 23 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

24. Slide 24 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