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Principles of Business and Personal Finance
Ms. Donna Lee Sirkis
NC Competency 002:
Analyze the role of the consumer as a responsible citizen.
NC Objective 2.02:
Examine purchasing decisions and various products with respect to
value, service, maintenance and price.
I. Market Economy Terms
A. Market Economy: Basic economic decisions are based on the actions of buyers and
sellers in the market.
B. Price: The amount of money given or asked for when goods or services are bought or
sold.
C. Market (Marketplace): Any place where individuals buy and sell goods and services.
D. Demand: The amount of goods or services consumers’ are willing and able to buy.
E. Supply: Amount of goods or services that producers will provide.
F. Law of Demand: Consumers will buy less of an item at a higher price than at a lower
price.
G. Law of Supply: The higher the price the more producers will supply and the lower the
price the less producers will supply.
H. Surplus: An over supply of a product. Producers are producing more of a product
than consumers will buy.
I. Shortage: An under supply of a product. Consumers are demanding more of a product
than producers are producing.
J. Equilibrium Price: The price at which the amount supplied, and the amount
demanded come together.
II. How Wants and Needs Affect Supply and Demand
A. Wants: Anything that is not necessary for survival, but that adds comfort and
pleasure to your life.
B. Needs: Anything that is necessary for survival, such as food, clothing, and shelter.
C. Supply and Demand: As consumers what we demand of a product/service affects the
supply and subsequently the price.
III. How Price, Supply and Demand are Inter-related
IV. How Price, Demand, Supply, Law of Demand, Law of Supply, Surplus, and Shortage
Affect Consumer Purchasing
A. Price: What customers pay and the method of payment.
B. Demand: The quantity of a product or service that consumers are willing and able to
buy at a particular price.
C. Supply: The quantity of a product or service that businesses are willing and able to
provide at a particular price.
D. Law of Supply and Demand: Economic proposition that, in any free market, the
relationship between supply and demand determines price and the quantity produced. A
change in either will lead to changes in price and/or amount produced in order to achieve
EQUILIRUIM in the market.
E. Law of Demand: Consumers will buy less of an item at a higher price than at a lower
price.
F. Law of Supply: The higher the price the more producers will supply and the lower the
price the less producers will supply.
G. Law of Diminishing Returns: “Rule” of economics that states that beyond a certain
production level, productivity increases at a decreasing rate.
H. Surplus: Generally, surplus refers to anything in excess amount. In finance, surplus
is the remainder of a fund appropriated for a particular purpose. In corporations, surplus
denotes assets left after liabilities and debts, including capital stock, have been deducted.
I. Shortage: When there is a deficiency in the market of either goods, services, or
customers.
V. How and Why Consumers Make Purchasing Decisions
A. Discretionary Income: Income that is left over after a consumer’s basic needs have
been met
B. Nondiscretionary Income: Income used to purchase items to meet basic needs
VI. Types of Goods
A. Convenience Goods:
• Goods consumers buy regularly without spending much effort.
• Usually inexpensive.
• Examples: milk and bread
B. Shopping Goods
• Goods consumers buy after spending time looking around and comparing
products.
• Usually more expensive than convenience goods
• Examples: vehicles and designer clothing
C. Specialty Goods
• Goods that consumer’s select by brand or company which require a special sales
effort.
• Usually expensive
• Examples: digital cameras, stereo equipment, and perfume
VII. The Value of Specific Goods
A. Brand Name: A name given to a product or service by a manufacturer that is intended
to distinguish it from other similar and/or competitive products or services.
B. Store Brand: product such as coffee, rice, canned vegetables, that carry the store’s
name (Kroger, Safeway, Lowes, Harris Teeter, etc.)
C. Generic Brand: plainly labeled, unadvertised product. At present generic brands are
mostly limited to prescription drugs and grocery items and may cost up to 40% less than
advertised brands.
VIII. The Differences Offered by Various Merchandisers
A. Department Store: Large retail store having wide variety of merchandise organized
into customer-based departments. A department store usually sells dry goods, household
items, wearing apparel, furniture, furnishings, appliances, radios, and televisions, with
combined sales exceeding $10 million.
B. Mass Merchandisers: Sells a variety of items at reasonable or low prices; often are
nationwide stores; practical displays and not always very organized; some service is
available
C. Off Price Outlet: Off-price stores usually buy from producers with surpluses;
therefore, carry many manufacturers’ brands or manufacturer’s overruns. Prices are
discounted at 20-70% off; merchandise can be slightly imperfect or discontinued; limited
service is available
D. Limited Line Retailers: Sell only one kind of merchandise — clothing stores, athletic
goods stores, home appliance stores, hardware stores; services vary, selling methods, and
prices vary
E. Superstore/Hyper-stores: Variation of a supermarket that offers a variety of non-food
items, such as appliances, clothing, and services, in a vast space much larger than a
regular supermarket, sometimes in excess of 200,000 square feet.
F. Warehouse Stores (Market or Club): Low-priced retail outlets selling annual
memberships to consumers and businesses. These stores are normally established in
warehouse-type buildings where merchandise is displayed without any frills. Perhaps the
known is SAM’s Club, a division of Wal-Mart Stores, Inc.
G. Catalogs: List of items available for purchase, with the description and price of each
item. Usually, a “bind-in” order form is included with the catalog. Toll-free telephone
numbers are frequently given for ease of phone-in orders. Catalogs are normally mailed
‘third-class’ mail.
H. Internet/Electronic Shopping: refers to shopping that is done via the World Wide
Web, i.e., Internet.
IX. How Pricing, Services by Merchandisers, and Value Affect Purchasing Decisions
A. Types of Merchandisers
1. Department Stores
• Stores have different departments selling a variety of products — men’s,
women’s, children’s clothing, home furnishings, jewelry, and services are
examples
• Goods are moderately priced, salespeople are in each department, special
services are available (gift wrapping, delivery), elaborate merchandise displays
and may even have a salon
• Examples: Belk, Dillards, Macy’s, Nordstrom’s, Saks Fifth Avenue
2. Mass Merchandisers
• Sells a variety of items at reasonable or low prices; often are nationwide stores;
practical displays and not always very organized; some service is available
• Examples: Target, Sears, WalMart
3. Off-Price and Outlet Stores
• Off-price stores usually buy from producers with surpluses; therefore, carry
many manufacturers’ brands or manufacturer’s overruns
• Prices are discounted at 20-70% off; merchandise can be slightly imperfect or
discontinued; limited service is available
• Example: TJ Maxx, Ross, Marshalls
• Outlet stores are operated by the manufacturer and carry only that
manufacturer’s brand or an affiliated manufacturer;
• Examples: Easy Spirit, Carter’s, Peaches and Cream, Corning
4. Limited Line Retailers
• Sell only one kind of merchandise — clothing stores, athletic goods stores,
home appliance stores, hardware stores; services vary, selling methods, and prices
vary
• Examples: Limited, GAP, Foot Locker, Best Buy
5. Superstores/Hyper-stores
• Superstores: Extremely large (30,000 sq feet), similar to supermarkets, but also
sell mass merchandise items like clothing, garden products, and books; no
customer services
• Examples: Kroger, Harris Teeter, Lowes Food Store, Food Lion
• Hyper-stores: Larger than Superstores (200,000 sq feet)
Principles of Business
Name: __________________________
NC OBJ 2.02
Worksheet on Purchasing
Using the unit price of the following items, determine which would be the most economical
purchase.
Most Economical Purchase
Laundry Detergent
90 Ounces © $6.65
48 Ounces @ $4.50
Jar of Peanut Butter
32 Ounces © $2.45
20 Ounces © $1.75
16 Ounces © $1.35
Spaghetti Sauce
16 Ounces © $1.95
32 Ounces © $3.85
48 Ounces © $5.50
Milk
I Quart © $1.25
1 Gallon © $3.95
Margarine
8 Ounces © $.75
I Pound © $1.45