1. Chapter 3 Your Purchasing Power Page 76

2. 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
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3. 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
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4. 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.
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5. 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
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6. 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
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7. 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.
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8. 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
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9. 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
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10. 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
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11. 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
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12. 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
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13. 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
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14. 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
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15. 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
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16. 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
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17. 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
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18. 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
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19. 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
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