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

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
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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
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4. 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
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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
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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
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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
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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
Source: The Federal Reserve Board, Monetary Policy, (accessed October 17, 2006).
Fiscal policy
3-1 Inflation and Prices
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9. 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
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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)
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
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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
A mall offers many stores at which to stop for the best prices.
3-2 Price and Demand
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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
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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
Taking advantage of sale prices is an example of optimizing.
3-2 Price and Demand
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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
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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
This shopper is economizing and following a shopping list.
3-2 Price and Demand
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16. 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
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17. 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
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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
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