Lesson: Inflation - Inflation is a process in which the price of a product or service is rising while money is losing its value. It is a rising of the cost-of-living. The price level rises persistently and then people need more and more money to pay for something. For example, incomes rise, therefore, companies must pay more in salaries and wages. And as prices rise, consumers must make more money when they go shopping. But what we don'
t realize is that money gets smaller and smaller. That is because of inflation. Inflation is paying more money for the same price of a good or service than we used to. However, a change in price is not inflation. For example, if the price of a cheeseburger jumps to $22 and all other prices of products averages out to the same, then this is not inflation. But if the price of a hamburger plus all other prices increase by a similar percent, then this is inflation. A one-time jump in prices is not inflation. It is an ongoing process. Inflation is a general (across-the-board) rise in prices.
Inflation is a serious problem and it robs us of our earnings. However, there are a few occupations where inflation actually helps sellers.
Calculating the Inflation Rate -
Inflation Rate = 126 - 120
120 multiplied by 100 = 5% per year.
This equation shows the connection between the inflation rate and the price level.
The most common types of inflation are Demand-Pull and Cost-Push.
Creeping inflation is actually desirable to some economists because of its expansionary effect upon the economy. Product prices tend to increase ahead of resource prices as the economy approaches full employment.
Consumer Price Index - The Consumer Price Index (CPI) is a measure of the average of prices paid by consumers for a fixed basket of consumer goods and services. The CPI tells you what has happened to the value of your money.
The CPI is defined to equal 100 in a reference base period. For example, the
Thursday, February 14, 2013
Wednesday, February 13, 2013
Income Statement and Balance Sheet
Preparing an Income Statement and a Balance Sheet are the first steps we need in order to create a budget. The Income Statement covers over a period of time (i.e., covers a period of one month, one quarter, one year, etc.) while the Balance Sheet tells you the financial health of you or your business at a particular date.
Go to the Related Documents on the right-hand side of this blogspot and click the
Income Statement and Balance Sheet to give you an idea of how business (and individuals) have a better picture of the company's financial position or the financial health.
You may also create another column called Pro-Forma to compare and contrast the
increase and decrease of, for example, the same month, one-year ago,etc. If you would like to measure it in percentages of increase (+) or decrease (-), then create a final column to the far right and calculate the percent of increase or decrease from a year ago - same month.
See: Balance Sheet - https://docs.google.com/a/kalakauamiddle.org/file/d/0BxviQzebUymia3VLTlZJTEw2UG8/edit?usp=sharing
See: Income Statement - https://docs.google.com/a/kalakauamiddle.org/file/d/0BxviQzebUymiWkw2UG54LWdVRmM/edit?usp=sharing
Go to the Related Documents on the right-hand side of this blogspot and click the
Income Statement and Balance Sheet to give you an idea of how business (and individuals) have a better picture of the company's financial position or the financial health.
You may also create another column called Pro-Forma to compare and contrast the
increase and decrease of, for example, the same month, one-year ago,etc. If you would like to measure it in percentages of increase (+) or decrease (-), then create a final column to the far right and calculate the percent of increase or decrease from a year ago - same month.
See: Balance Sheet - https://docs.google.com/a/kalakauamiddle.org/file/d/0BxviQzebUymia3VLTlZJTEw2UG8/edit?usp=sharing
See: Income Statement - https://docs.google.com/a/kalakauamiddle.org/file/d/0BxviQzebUymiWkw2UG54LWdVRmM/edit?usp=sharing
Tuesday, February 12, 2013
Best Investment Results
As a guide or stragtegy for the Stock Market Simulation Game, you may look up historical price-to-earnings (P/E) ratios online.
The Price-Earnings (P/E) ratio determines the value of the company. You can get
a sense of how overvalued or undervalued a company might be. The Y-charts.com website will give you several years' worth of P/E numbers.
For Morningstar, go to Morningstar.com - Enter the ticker symbol to get to a company's page. Step 2, click on the "Valuation," tab and the current P/E appears with the average P/E for the company industry and the five-year average of that company. There is even a "forward," P/E which is an anticipated or expected earnings over the coming year.
Also consider going to Standard & Poor's (S&P) for data on P/E ratios and line
graphs to show historical data.
See the actual Best Investor Results of 2012. This is not a recommendation but just a guide to wise investing:
https://docs.google.com/a/kalakauamiddle.org/file/d/0BxviQzebUymidGI2d0VmS01IV0U/edit?usp=sharing
Source: Honolulu Star-Advertiser, Ask The Fool, 2/11/2013, B-6.
The Price-Earnings (P/E) ratio determines the value of the company. You can get
a sense of how overvalued or undervalued a company might be. The Y-charts.com website will give you several years' worth of P/E numbers.
For Morningstar, go to Morningstar.com - Enter the ticker symbol to get to a company's page. Step 2, click on the "Valuation," tab and the current P/E appears with the average P/E for the company industry and the five-year average of that company. There is even a "forward," P/E which is an anticipated or expected earnings over the coming year.
Also consider going to Standard & Poor's (S&P) for data on P/E ratios and line
graphs to show historical data.
See the actual Best Investor Results of 2012. This is not a recommendation but just a guide to wise investing:
https://docs.google.com/a/kalakauamiddle.org/file/d/0BxviQzebUymidGI2d0VmS01IV0U/edit?usp=sharing
Source: Honolulu Star-Advertiser, Ask The Fool, 2/11/2013, B-6.
Monday, February 11, 2013
Lesson: Shortage/Surplus and Price Floors/Ceilings
Lesson: Shortages/Surplus and Price Floors/Ceilings - Shortages forces prices to increase. The rising prices reduces the shortage because it decreases the quantity demanded and increases the quantity supplied. When prices settle at a certain point
where there is no more shortage and the price gravitates to rest at an equilibrium.
Suppose the price of a CD is $1. Buyers plan to purchase 6 million discs and producers plan to sell 3 million discs in that same time period. But the forces of shortages increases the prices and force the price to the Point of Equilibrium. Consequently, when sellers notice long lines of dissatisfied consumers, they raise the prices toward equilibrium.
It is the rising prices that reduces the shortage because it decreases the qunatity demanded
and increases the quantity supplied.
Surplus - Surpluses force the prices down. Example, the price of a CD is $2
and producers (sellers) plan to sell 5 million discs per week and consumers want to only
buy 3 million per week. Since producers cannot force consumers to buy more than they want to, the consumers only actually buy 3 million discs for the week. The forces of surplus lower the price and move it toward the Point-of-Equilibrium. Because the producers are unable to sell the quantities of CDs that they had planned to, they cut their prices. Eventually, producers reduce their manufacture less and, as producers cut back on their production, the prices falls toward the Point-of-Equilibrium. The falling price
decrease the surplus because people want to buy more at lower prices. There would no longer be any surpluses, moving the price to equilibrium.
Price ceilings and Price floors - Sometimes the government enacts price ceilings and thereby creates shortages. The government sometimes sets minimum legal prices enacting a price floor. In this case, the government prohibits a price from falling to its equilibrium price. If, on the other hand, the government enacts a price ceiling, it keeps the price from rising to its equilibrium. The result is a shortage because the low price makes the consumers want to buy more than producers want to sell.
For your lesson, draw the following and label all titles, sub-titles, and sources of information. Y-Axis (Price) intervals can be set at .50 and X-Axis (Quantity) is spaced
at 2 million at each interval.
Quantity Quantity Shortage (-)
Price demanded supplied or Surplus (+)
.50 9 0 -9
1.00 6 3 -3
1.50 4 4 0
2.00 3 5 +2
2.50 2 6 +4
Question to Answer: Using the above information, describe or designate where the surplus and shortage areas by coloring or shading your answer.
where there is no more shortage and the price gravitates to rest at an equilibrium.
Suppose the price of a CD is $1. Buyers plan to purchase 6 million discs and producers plan to sell 3 million discs in that same time period. But the forces of shortages increases the prices and force the price to the Point of Equilibrium. Consequently, when sellers notice long lines of dissatisfied consumers, they raise the prices toward equilibrium.
It is the rising prices that reduces the shortage because it decreases the qunatity demanded
and increases the quantity supplied.
Surplus - Surpluses force the prices down. Example, the price of a CD is $2
and producers (sellers) plan to sell 5 million discs per week and consumers want to only
buy 3 million per week. Since producers cannot force consumers to buy more than they want to, the consumers only actually buy 3 million discs for the week. The forces of surplus lower the price and move it toward the Point-of-Equilibrium. Because the producers are unable to sell the quantities of CDs that they had planned to, they cut their prices. Eventually, producers reduce their manufacture less and, as producers cut back on their production, the prices falls toward the Point-of-Equilibrium. The falling price
decrease the surplus because people want to buy more at lower prices. There would no longer be any surpluses, moving the price to equilibrium.
Price ceilings and Price floors - Sometimes the government enacts price ceilings and thereby creates shortages. The government sometimes sets minimum legal prices enacting a price floor. In this case, the government prohibits a price from falling to its equilibrium price. If, on the other hand, the government enacts a price ceiling, it keeps the price from rising to its equilibrium. The result is a shortage because the low price makes the consumers want to buy more than producers want to sell.
For your lesson, draw the following and label all titles, sub-titles, and sources of information. Y-Axis (Price) intervals can be set at .50 and X-Axis (Quantity) is spaced
at 2 million at each interval.
Quantity Quantity Shortage (-)
Price demanded supplied or Surplus (+)
.50 9 0 -9
1.00 6 3 -3
1.50 4 4 0
2.00 3 5 +2
2.50 2 6 +4
Question to Answer: Using the above information, describe or designate where the surplus and shortage areas by coloring or shading your answer.
Lesson: The Point of Equilibrium
Lesson: The Point of Equilibrium - The forces of demand and supply gravitate to a balance known as the Point of Equilibrium. The equilibrium price is the price that balances the amount of a good or service demanded with the amount supplied. This is a meeting point which allows buyers and sellers to agree on the amounts of a product they want to buy and sell. It is the price of a good that regulates the quantities demanded
and supplied. At lower prices, consumers want to buy more of something and producers
want to supply less.
For your Equilibrium lesson, draw where the Point of Equilibrium rests and show all
pertinent axes, labels, and data. For your graph, draw intervals of 2 for the Quantity or x-axis up to 10, and space the y-axis with .50 increments up to $3.00.
Quantity Quantity Shortage (-)
Price demanded supplied or Surplus (+)
.50 9 0 -9
1.00 6 3 -3
1.50 4 4 0
2.00 3 5 +2
2.50 2 6 +4
Verify your answer with the Answer Guide. Label title, sub-titles, and sources of information in the Header/Footer section under the View icon.
and supplied. At lower prices, consumers want to buy more of something and producers
want to supply less.
For your Equilibrium lesson, draw where the Point of Equilibrium rests and show all
pertinent axes, labels, and data. For your graph, draw intervals of 2 for the Quantity or x-axis up to 10, and space the y-axis with .50 increments up to $3.00.
Quantity Quantity Shortage (-)
Price demanded supplied or Surplus (+)
.50 9 0 -9
1.00 6 3 -3
1.50 4 4 0
2.00 3 5 +2
2.50 2 6 +4
Verify your answer with the Answer Guide. Label title, sub-titles, and sources of information in the Header/Footer section under the View icon.
Lesson: Supply and The Law of Supply
Lesson: Supply and The Law of Supply - Again, like demand, there are two preequisites. Supply, defined, is the amount producers (sellers or manufacturers) plan to sell during a given time period at a particular price. Hence, supply refers to the entire relationship between quantity supplied and the price of a good. The supply curve normally is a downsloping curve moving from the upper right toward the left.
The Law of Supply states, "the higher the price of a good, the greater is the quantity supplied." As the quantity produced of any good increases, the marginal cost of producing the good also increases. It is never worth producing a good if the price received for it does not at least cover the marginal cost of producing it. So when the price of a good increases, producers are willing to absorb higher marginal cost and increase producing their quantities.
For the lesson in the law of supply, I must parethetically add, that any increase in supply is a move of the supply curve to the the right. When the price of a good changes, there is movement along the supply curve and a change in the quantity supplied.
Draw the Increase in Supply:
Original supply schedule New supply schedule
Old technology New technology
Price Quantity Price Quantity
A .50 0 A* .50 3
B 1.00 3 B* 1.00 6
C 1.50 4 C* 1.50 8
D 2.00 5 D* 2.00 10
E 2.50 6 E* 2.50 12
Verify your answers with Answer guide. Label title, sub-titles, and sources of information under the Header/Footer under View.
The Law of Supply states, "the higher the price of a good, the greater is the quantity supplied." As the quantity produced of any good increases, the marginal cost of producing the good also increases. It is never worth producing a good if the price received for it does not at least cover the marginal cost of producing it. So when the price of a good increases, producers are willing to absorb higher marginal cost and increase producing their quantities.
For the lesson in the law of supply, I must parethetically add, that any increase in supply is a move of the supply curve to the the right. When the price of a good changes, there is movement along the supply curve and a change in the quantity supplied.
Draw the Increase in Supply:
Original supply schedule New supply schedule
Old technology New technology
Price Quantity Price Quantity
A .50 0 A* .50 3
B 1.00 3 B* 1.00 6
C 1.50 4 C* 1.50 8
D 2.00 5 D* 2.00 10
E 2.50 6 E* 2.50 12
Verify your answers with Answer guide. Label title, sub-titles, and sources of information under the Header/Footer under View.
Lesson - Demand and The Law of Demand
Lesson: Demand and The Law of Demand - Demand has a preequisite of two factors: the desire and the money to pay for a product or service. Demand refers to a relationship between the amount of goods purchased at various prices.
It is the quantity of a good as well as the price of a good (or service) in which demand is defined.
The Law of Demand is a natural law. It states: When the price of a good goes up, consumers will buy less of it. Or stated conversely, When the price of a good or service goes down, people buy more of it (other things being equal).
The reasons for an increase in demand are limitless. An article in the written media or a television report may impact an increase of eating corn or strawberries. Results reported in The New England Journal of Medicine about taking a particular pill to alleviate pain may signify a drop in the demand for a highly touted foot ache panacea.
Our next lesson on page 61 of Parkin's Economics text reflects the Demand lesson.
A note of caution: A "change in demand" is quite different from a "shift in price." A change in demand moves the demand curve to the right (and a decrease in demand is a shift to the left).
Construct a Demand Schedule from the following data:
Original demand schedule New Demand Schedule
CD Burner = $300 CD burner = $100
Price Quantity Price Quantity
A .50 9 A* .50 13
B 1.00 6 B* 1.00 10
C 1.50 4 C* 1.50 8
D 2.00 3 D* 2.00 7
E 2.50 2 E* 2.50 6
Verify your answers to my answer sheet. Label title, sub-titles, and sources of information under Header/Footer in the View icon.
It is the quantity of a good as well as the price of a good (or service) in which demand is defined.
The Law of Demand is a natural law. It states: When the price of a good goes up, consumers will buy less of it. Or stated conversely, When the price of a good or service goes down, people buy more of it (other things being equal).
The reasons for an increase in demand are limitless. An article in the written media or a television report may impact an increase of eating corn or strawberries. Results reported in The New England Journal of Medicine about taking a particular pill to alleviate pain may signify a drop in the demand for a highly touted foot ache panacea.
Our next lesson on page 61 of Parkin's Economics text reflects the Demand lesson.
A note of caution: A "change in demand" is quite different from a "shift in price." A change in demand moves the demand curve to the right (and a decrease in demand is a shift to the left).
Construct a Demand Schedule from the following data:
Original demand schedule New Demand Schedule
CD Burner = $300 CD burner = $100
Price Quantity Price Quantity
A .50 9 A* .50 13
B 1.00 6 B* 1.00 10
C 1.50 4 C* 1.50 8
D 2.00 3 D* 2.00 7
E 2.50 2 E* 2.50 6
Verify your answers to my answer sheet. Label title, sub-titles, and sources of information under Header/Footer in the View icon.
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