10F1_Prices_Part_I

10F1_Prices_Part_I - Prices Readings: Click to edit...

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Click to edit Master subtitle style Prices Readings: Zagorsky Chapter 5 “Prices In the Economy”
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Overview Every manager and trader cares about individual prices. Managers: the price is an important for determining if making a profit Traders spend most of the day tracking individual financial prices. Individual prices are clearly important Why should managers and traders also care about how prices for all items in the economy are changing?
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1st Key Reason It is easy to track the price of your product or service This information helps you understand how much your prices are rising or falling. How do we measure the price of all items in the economy? How do we know if overall prices of items are rising or falling?
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1st Key Reason (Continued) Why is this important for your business? Assume sales are constant. If the prices customers are paying are rising faster than overall prices then profits are increasing in “real” terms. If the prices customers are paying are rising at a slower pace or are falling faster than overall prices your profits
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Cost of Living Imagine you just graduated and have a job paying $50,000 a year. What kind of life style will you lead If you live in Manhattan, NY and need to rent a place for $2,500 per month? Just have $20,000 to pay for taxes, food, clothes, transportation and fun. If you live Manhattan KS and need to rent a place for $250 per month? Have $47,000 to pay for taxes, food, clothes, transportation and fun. The cost to live directly influences your life style.
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Historical View What has happened to prices in the USA over time? Next two slides show how much a basket of goods which cost $100 in 1967 cost in every year from 1800 to present. First slide 1800 to World War I Second slide World War I to present.
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How Much Do Prices Change? Pre World War I Consumer Prices In The USA 1967=100 0 10 20 30 40 50 60 70 1800 1805 1810 1815 1820 1825 1830 1835 1840 1845 1850 1855 1860 1865 1870 1875 1880 1885 1890 1895 1900 1905 1910
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Key Point From History You should not always make business or personal plans based on steadily rising consumer prices. Prices do not always go up in history. From roughly the founding of the U.S. until World War II there were many periods when prices fell or did not change. Price rises usually associated with war. Modern Example of falling prices: Japan
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How Much Do Prices Change? Post World War I Consumer Prices in the USA: 1967=100
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Starting in 1939, U.S. residents have faced steadily rising consumer prices. From World War II to present prices have gone down in just three time periods and each fall was extremely small. Prices fell by roughly 1 percentage point in 1949
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10F1_Prices_Part_I - Prices Readings: Click to edit...

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