The price level it is defined as a measure of the prices and goods of a country. Various aspects are taken into account to calculate them, related to the importance it has for consumers and citizens and expresses the average level that each of the goods can have.
If you want to know its formula and some other relevant aspects of this concept, keep reading to find out.
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In this article you will find:
Calculate the price level
The price level It is known as a total value and this is one of the main differences from the value of money. Knowing the value of each of the different products or services can be a very complicated task and for this reason they are obtained through the value of products and services.
Aspects such as inflation They increase in the value of prices year after year, although in most economies this increase tends to occur gradually, unless they are going through acute financial crises.
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Price level calculation
In countries like the United States, certain products considered basic for a weekly average American are taken and the price of this basket is calculated In order to obtain the national price level, similar forms exist in other countries with the calculation of what is called the basket. basic.
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Price level examples
For this example we will assume a country with only two goods, a good that is will determine as good A and another good determined as good B, we will put a price on each one, one 100 and another 500.
Now let's add to these prices a variation in the period of one semester, each price now being 150 and 600 respectively, the price level would be at 375 and it could be said that the price level has uploaded.
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Variation in price level
There are many factors that can intervene in the variation, this reflects how the lives of citizens change in a period of time, where 2 phenomena can be identified, one of them is inflation and the other is deflation.
Inflation
A term that we use on a daily basis and that is defined as a general increase in the price of goods and services, when We hear that there is inflation, it means that prices have risen or have been inflated, and that's where it comes from. finished.
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This means that people lose purchasing power since with the same amount of money they are unable to buy the same goods as before. Inflation is not always a negative thing and in fact in healthy economies it seeks to be between 2 and 3%
Deflation
Is he opposite effect of inflation, is also known as negative inflation, in this case and contrary to inflation there is a fall in prices, this, Although it may sound good, it often occurs in times of economic recession and among other things, it may be due to excess offer.
What is the relationship between price levels and the price index?
The price index shows the price of the products according to months or years and is calculated taking into account two price levels and is expressed as percentages. This should be updated as necessary to truly understand consumer behavior and how the supply of services and goods varies.
The example that we can have could be with respect to mass consumption with respect to the internet and smartphones, paying rent, consuming data, this it can be something significant in the consumer basket, which was irrelevant 15 or 20 years ago, for this reason the aforementioned must be taken into account aspects.
