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Economic problem

 
 
Reply Tue 28 Jul, 2015 12:15 am
Why is it inflation occurs?
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Type: Question • Score: 1 • Views: 861 • Replies: 1
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Reply Sun 2 Aug, 2015 08:23 pm
@ianjamesako,
Good question ian. Actually the problem of inflation is, as you said, caused by increasing the money supply. The value of the dollar is reduced in that the increased amount of money supply lowers interest rates. This causes more people to buy new houses and invest in businesses. When people borrow this money, it is put into the economy. The prices of just about everything go up. It's not magical, interest rates are down prices go up. No, it takes time for things to adjust. But once businesses see any cost rise, the price of their product must rise as well. It doesn't magically affect all aspect of the economy at once. It is, in a sense, a trickle down effect. Realize, though, that inflation in it self it not a problem. The problem is not the price changing. The problem is adapting to the price change. For instance, a company sends catalogs out once a year. When inflation occurs, they cannot so easily change their prices. That's one of the problems. But, you didn't really ask about the problems of inflation, so I will stop here.

About your question of DVD’s: Let's imagine you are the only consumer of DVD’s. Let's say you buy 1,000 DVD’s when the price is $10. If the DVD seller has reason to think you would buy 800 DVD’s at a price of $15, he will do it. But, you're talking about a situation called a monospony. By definition the prices would be lower.
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