StudentShare solutions
Triangle menu

Increase in prices - Essay Example

Nobody downloaded yet

Extract of sample
Increase in prices

However inflation cannot always be termed as "bad" if seen in terms of higher money incomes. The higher prices of everything would result in higher receipts for resource suppliers and hence a growth in their income levels.
Inflation usually results in the standard of living to decline because it now costs more to buy the same amount of goods and services. However there are some cases where the rising prices do not necessarily mean declining living standards. Following are some of the factors:
Nominal Income: If the economy is suffering from a period of rising prices and at the same time there is a commensurate rise in the level of income, this would not lead to a decline in living standards. This is because the increase in prices is offset by the proportionate increase in income, resulting in an unchanged consumption pattern. This is assuming everything else is constant.
Real income: This is the income that is adjusted for inflation. In cases where the nominal income is rising but the rate at which it is growing is less than the inflation rate, it would not lead to a boost in the standard of living. This is because the inflation will erode the purchasing power of money and people will be spending the extra income in the purchasing of the same amount of goods and services. ...
Since almost all countries are plagued by inflation, people look at their real income to determine their purchasing power rather than the nominal income.

Tax structure: In an economy where there is a favourable tax structure, the spending patterns are high. This is due to the fact that even though inflation is prevalent, people still have more of the disposable income left over after their regular purchases. The spending patterns have a multiplier effect and in turn lead a general boom in the economy. The excess spending means people are demanding more goods and services signalling to the producers to produce more. Since the level of production needs to be increased, producers would demand more labour and more production would thus lead to an increase in the national income of the country. To sum it up, tax breaks given to the people will not lead to a decline in the standard of living even in the presence of rising prices.

Labour: If the economy has more of the skilled labour as compared to the unskilled workforce and the labour productivity is high, this would also result in a higher standard of living. This is attributed to the fact that since the labour is skilled it would demand higher wages for each extra output it produces. Since the employers would want to retain the skilled labour, it would have to pay higher wages otherwise the labour would find jobs elsewhere. The higher wages would cause more spending and this would maintain or boost the standard of living even though the economy might be in the grips of inflation.

Interest rate: The level of interest rates in an economy is an important factor in determining the spending patterns of the consumers. If the interest rate is low, then borrowing is ...Show more

Summary

A trend of rising prices or an increase in the general price level of an economy is known as inflation. It is also referred to as the sustained increase in the price level. The general perception is that inflation is a bad phenomenon and is detrimental to the growth of an economy…
Author : leila36
Increase in prices essay example
Read Text Preview
Save Your Time for More Important Things
Let us write or edit the essay on your topic
"Increase in prices"
with a personal 20% discount.
Grab the best paper

Check these samples - they also fit your topic

Causes of Increase in Oil Prices in Last 36 Months
A major reason for increase in oil prices in the last three years is the speculation in the futures market relative to the oil industry. Since mid 2005 oil marketers have been taking an entrenched position in speculating that the oil industry’s future looked dark.
3 pages (750 words) Essay
Price Increase at Port Utopia hotels
The increase in price is justified obviously because none of the hoteliers, except Brad, object to the price increase. The likelihood of any consumer backing off or refusing to pay the new rates is minimal because Port Utopia is a popular tourist and convention destination.
3 pages (750 words) Essay
Macroeconomics-Oil Prices Relationships
This essay focuses on the determination of the quantitative correlation between oil prices and macroeconomic conditions of an economy. Three models for understanding the impact of oil price fluctuations were assessed in the essay. The AS/AD model has been chosen in preference to those developed by Mankiw and Blanchard and Sheen
10 pages (2500 words) Essay
Food Prices
This is not causing strong imbalances in the balance of payments for many nations but also creating significant socio-economic problems in most of the countries. From malnutrition to starvation, increase in prices of food items has almost created a vicious circle for most of the poor nations- finding themselves to struggle in order to meet the new challenge of high food prices.
4 pages (1000 words) Essay
Increase of Gas Prices
In this regard, price of the gas has been one of the reasons that have affected its market, as well as, its supply in different parts of the world. This paper will try to discuss and analyze different causes that have resulted in the increase of gas prices in the world market, especially since last decade.
5 pages (1250 words) Essay
Potential reasons for the increase of gas prices
One of the oldest and still-in-demand resources is the Natural Gas around the world, which is still being used in under-developed, as well we, developed parts of the world. However, demand and supply of this valuable mineral resource has been in variation due to a number of reasons.
6 pages (1500 words) Essay
Discuss how increase in fuel prices are effecting the airline industry
The aim of this essay is to discover how increase in fuel prices affects the airline industry. Since the fuel cost is one of the major costs incurred
6 pages (1500 words) Essay
The relationship between crude oil prices and gasoline prices
Largely, market prices of gasoline products change whenever crude oil prices change. Policy makers in the oil industry are aware of the influence of this relationship. This paper explores the relationship that exists between the crude oil and the gasoline
5 pages (1250 words) Essay
Writing Reflection Letter to future english professor
By the time mid-semester arrived, I was able to write better, cite my source properly but still struggled with connecting topic sentences to the thesis statement. I still have struggles in writing but I utilize my learning experiences from English 101 class to help me work
3 pages (750 words) Essay
What higher food prices mean for both consumers and producers at your own country Which are the factors that drive the food prices higher What, and for whom, are the costs and benefits of such an increase
In this case, the governments have to come up with ways of bringing food prices under control and in aiding poor people to cope with the rising food bills. The increasing food prices affect both the producers and the consumers1. High energy prices in
5 pages (1250 words) Essay
Hire a pro to write
a paper under your requirements!
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Your email
YOUR PRIZE:
Apply my DISCOUNT
Comments (0)
Click to create a comment
Contact Us