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

Copyright 2007 Thomson South-Western

Chapter 3

Income and Purchasing Power

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)

• Has several variations– Disinflation– Reflation– Hyperinflation

3-1 Inflation and Prices

Slide 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


Slide 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.

Slide 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


Slide 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)


Slide 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


Slide 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, http://www.federalreserve.gov/policy.htm (accessed October 17, 2006).

• Fiscal policy

Slide 9

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

Slide 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 $23.76Labor 20.00Paint and supplies 1.24Indirect costs 12.00Total cost 57.00Markup (40%) 22.80Price $79.80

Slide 11

Value-Based Pricing

• Price is set by considering how much consumers will be willing to pay

• Companies often do market research to helpin setting prices


A mall offers many stores at which to stop for the best prices.

Slide 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


Slide 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.

Slide 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


Slide 15

Success Skills

Time Management • Using time management strategies can help

you be more productive• Scheduling time to plan

purchases can help you makebetter buying decisions


This shopper is economizing and following a shopping list.

Slide 16

Selling Goods and Services

• Sellers use various strategies– Convenience

– Customer service

– Meeting needs and wants

– Creating demandthrough advertising

3-3 Selling and Buying Strategies

PR Newswire HOLTON, TEITELMAN AND GURY ADVERTISING

Slide 17

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


Slide 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


Documents

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