Purchasing power is the amount of value of a good/services compared to the amount paid. As Adam Smith noted, having money gives one the ability to "command" others' labor, so purchasing power to some extent is power over other people, to the extent that they are willing to trade their labor or goods for money. Adam Smith ( baptised 16 June 1723 – 17 July 1790) was a Scottish moral philosopher and a pioneer of Political economy. Money is anything that is generally accepted as Payment for Goods and services and repayment of Debts.
If money income stays the same, but the price level increases, the purchasing power of that income falls. A price level is a hypothetical measure of overall prices for some set of goods and services in a given region during a given interval normalized relative to some Inflation does not always imply falling purchasing power of one's real income, since one's money income may rise faster than inflation. In economics inflation or price inflation is a rise in the general level of prices of goods and services over a period of time Real income is the Income of individuals or nations after adjusting for Inflation.
For a price index, its value in the base year is usually normalized to a value of 100 in the base year. A price index ( plural: “price indices” or “price indexes” is a normalized Average (typically a ''weighted'' average) of Prices for a The formula for purchasing power of a unit of money, say a dollar, relative to a standard price index P in a given year is 1/(P/100). So, by definition the purchasing power of a dollar decreases as the price level rises.
See also
- Purchasing power parity
- Consumer Price Index
- Fair Trade
- Free Trade
- Group buy
- Collective buying power
External Links
- MeasuringWorth.com has a calculator with 7 different measures for bringing US $ values from the late 1700s up to any year until 2006. The purchasing power parity ( PPP) theory uses the long-term equilibrium Exchange rate of two currencies to equalize their Purchasing power. CPI redirects here For other uses see CPI (disambiguation. A consumer price index ( CPI) is a measure of the average price of consumer Fair trade is an organized Social movement and market-based approach to empowering developing country producers and promoting sustainability Free trade is a system in which the trade of goods and services between or within countries flows unhindered by government-imposed restrictions Tuángòu, which loosely translates as team buying or group buying (also known as store mobbing) is a recently developed shopping strategy originating Collective buying power is when a group of consumers come together and use the old rule of thumb there's power in numbers to leverage the group size in exchange for discounts The Measures of Worth page discusses which would be the most appropriate for different things.
- Purchasing Power Calculator by Fiona Maclachlan, The Wolfram Demonstrations Project.
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