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Unformatted text preview: at producers
are willing and able to
supply at different price
levels. Page 304 buy four times as much in 1962 as
it will buy today?
To get some idea of what a
$100,000 salary in 1962 would
equal in today’s dollars, economists
use the following formula: Salary in today’s dollars Salary in
earlier year (CPItoday /CPI1962)
Suppose that by “today” we
mean 2005. We want to find out
what Kennedy’s 1962 salary is
equal to in 2005 dollars. The CPI in
April 2005 was 194.6, and the CPI
in 1962 was about 30. Filling in the
formula, we see that Kennedy’s
salary in 1962 is equivalent to earning $648,667 in 2005. Salary in today’s dollars
$100,000 (194.6/30) $648,667
President Kennedy, in 1962,
earned more than the president
today earns, in terms of purchasing (left to right) and the supply in a market
with an upward-sloping supply curve (left to
right). As you may recall, equilibrium price
and quantity in a market (the point at which
the demand curve and the supply curve
intersect) are determined by the forces of
supply and demand.
What holds for a market holds for an
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This document was uploaded on 01/16/2014.
- Winter '14