The purpose of th is assessment is to analyze a scenario based on how inflation
ID: 1191786 • Letter: T
Question
The purpose of th is assessment is to analyze a scenario based on how inflation tends to increase prices and diminishes the consumers’ ability to purchase goods and services over time . Assessment Description: Every time a Hollywood moviemaker has a major box office success, the entertainment media compares the new film’s sales against those of past movies. These media reports usually put movies such as Titanic (1997), The Dark Knight ( 2008), and Avatar (2009) at the top of the list. The problem with such media comparisons is that they fail to differentiate between films’ nominal and real ticket sales. When all past films’ ticket sales are expressed in terms of the real purchasing power of the dollar, rankings of top - selling movies change dramatically. When sales are adjusted for the real purchasing power of the dollar, the top movies include Gone with the Wind (1939), The Sound of Music (1965), and Star Wars (1977). Does the fact that the dollar price paid to view a typical film today is much higher than the price paid to view a movie in 1939 mean that more real purchasing power is required to see a movie today than in 1939? Explain with respect to the real purchasing power and purchasi ng power parity
Explanation / Answer
Real purchasing power is a concept that adjusts the growth in income as well as the growth in prices of product / services. Faster relative growth in prices will reduces the overall purchasing power. Higher rise in prices are observed in comparison to income growth. Thus, higher real purchasing power is required to view a movie, today. Purchase power parity deals with the comparative prices of watching a movie in different countries. If exchange rate is showing depreciation it means that relatively more money is being paid to watch the movie. Regular depreciation in currency reflects that more real purchasing power is required to watch a movie.
Above reasons are the ones that cause the movie of old times (movies of 1935/1965/1977) to be the top of the list.
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