Fascinating economy

The inflation rate can also be used to adjust for the effects of inflation. Doing this shows how much something in the past would cost today. For example, by calculating the inflation-adjusted price, you would find out that something you paid $5 for in 1990 would cost $8.90 in 2013.

It is easy to see the effect of inflation – did you ever see gas selling so cheaply?

What Your Money Can Buy

Prices are always going up, but not all prices rise at the same rate. Some prices go up faster than the inflation rate, while others go up more slowly.

If the actual price and the inflation-adjusted price are about the same, then the price has not really gone up, even though the number on the price tag is bigger.

For example, when gas went from 55 cents per gallon in 1977 to $1.55 in 2000, that was about equal to the inflation rate. So, gas cost about the same. But inflation would have made that $1.55 in 2000 into only $1.82 by 2006. When gas went up to $3, it rose faster than inflation.

Often, when prices go up faster than the inflation rate, it is a result of high demand. For instance, football is a more popular sport today than it was in 1975. So prices for tickets to the Super Bowl have increased more than three times as fast as the inflation rate. Other areas where prices have outpaced inflation include medical care and college education.

If prices rise at 4% and your income does the same, you are not harmed in the short run. But you might be harmed in the long run as you try to save for college or retirement if your savings cannot keep up with rising costs over a long period of time.

As time goes by, a dollar buys less and less.

Knowledge Is Power

Decision making is an important part of the game of economics. Making good decisions requires knowledge, skill, and information.

The indicators give economists and others a fairly good picture of how the economy is doing.

Economic indicators have an influence on the decision-making process. For instance, the inflation rate is useful for making smart decisions. Imagine that you want to buy an expensive new TV. If the inflation rate is high, it might make sense to buy the TV now before it gets much more expensive. On the other hand, it might make more sense to save the money because your rent and food bills are going to go up, too. Economic indicators are like signposts guiding you along an economic path. If read correctly, they can help an economic player arrive at safely at a destination.

People who try to make money in the stock market use all kinds of information to make predictions.

Doctoring the Economy

Economists are like doctors who try to determine the health of the economy. They use different measures, such as gross domestic product, growth rates, the unemployment rate, and the inflation rate. These indicators provide useful information when it comes to making good decisions.

Unfortunately, unlike doctors, economists cannot cure economic sickness. They can diagnose the problems, but they leave it to us to make our own economic choices.

Economists examine the health of the economy.

Someone born in 1950 lived without computers for some 30 years, and then witnessed the evolution of laptops and the Internet. Later, he or she witnessed the invention of the cell phone and then the development of smart phones.

All this technology has drastically changed the way people live. Changes in technology affect the economy on a large scale, which in turn affects how people play the game of economics.

What could be coming next? We do not know exactly, but we do know there is something coming. And it will probably be amazing.

Humans are always striving to do things better. Developing technology is one way to do this. The advancement of technology leads to greater speed, higher production, and increased efficiency.

Many people think of technology as electronic devices such as computers, cell phones, and other wireless tools. These kinds of devices can certainly improve results in many areas.

Computers help people work faster by making it easier to find, organize and reorganize information. Cell phones make it easier to get in touch with others. Some devices can include a calendar, address book, computer, camera, and phone all in one.

But technology includes more than just smaller, faster, more powerful electronic devices. Technology is any new advancement in or application of science that improves results.

The Power of Machines

For thousands of years, humans have been inventing things to make their work easier, faster, and more efficient. Many of the things people have invented are machines that use power to replace human or animal effort.

You can get from one place to another in a horse-drawn carriage. But the car, once known as the «horseless carriage,» gets you there much faster. The car improves the ride.

The horse-drawn carriage was a technological development a long time ago. It provided an alternative to walking for those who could afford it. With a horse-drawn carriage, people could get to places much faster and with less effort.

The car increased that speed and reduced that effort even more.

Build a Better Mousetrap

New technologies are invented every day. In most cases, today’s devices are not made to replace human or animal effort. Instead, they are designed to replace older, less powerful machines with newer versions.

For example, the telephone replaced the telegram. While the telegram was the fastest way of getting messages from one place to another in its time, the telephone further increased the speed of communications.

More recently, cell phones are quickly replacing home phones and other so-called «land lines.» Home phones make calls fine, but their area of use is limited. Cell phones can go anywhere. This development makes an already powerful technology even more effective.

A Method to Their Madness

There is more to technology than just machines. Smaller, faster, more powerful machines lead to improved results. Better results can also be produced by organizing time or energy in new and different ways. Technological improvement can come from introducing a new method.

Methods are all over the place, even if you do not realize it. Nearly everything you do follows a method of some sort. How many fingers do you use to type, two or 10? That is your method. Do you brush your teeth with a side-to-side or swirling motion? Whichever you use is your method.

Some methods can be improved by changing them. These improvements are also technological developments. They improve results and make people’s lives better by increasing speed, efficiency, power, and so on.

Productivity Is Up

Producers like to improve efficiency. If they can make goods more easily, more quickly, and with less money, they can increase their profits. Producers are always looking for technological improvements to increase productivity. Machines can help do this.

Power tools tighten bolts more quickly than regular wrenches. Electric sewing machines enable faster production of clothing than a needle and thread. Backhoes haul much larger loads of dirt than shovels.

These are just a few examples. Machines are used in almost all types of production to make things easier and faster for workers. Sometimes, machines even replace workers entirely, eliminating human effort from the production process.

New methods can also increase productivity. One of the most powerful production methods is the assembly line.

The assembly line is a simple concept. Instead of having workers move from one production task to another, workers line up and each performs just one task as the product moves down the line. Each worker performs a different task very quickly as products move along. Also, each task uses just one tool, so no one has to put tools down or move to a different position. This eliminates extra extra motion and increases the speed of production.

The assembly-line method can be used to do anything that requires several steps, which is just about everything.

Prices Are Down

Improving productivity has major effects on the overall economy. For one thing, increased productivity usually leads to lower prices.

According to the law of supply and demand, when supply increases, prices drop. When technology makes production more efficient, there is usually more supply. That brings down the price of those goods. When the price of a good drops, more people can afford to buy the good, so producers make more sales and more profits.

The increased demand because of lower prices would normally raise prices again. But greater productivity helps producers meet rising demand with even more supply, so they can keep prices low.

Greater productivity brings cheaper goods to more people and wealth to the producer. Producers use some of this wealth to develop even better technologies, further increasing productivity.