If the wholesale price of an item goes up, for example gold, then how does this affect the economy? Does it produce an increase or decrease in sales?

 

If the price of an item goes up, then sales will decrease...unless the price is in the inelastic part of the price-quantity curve, which is normally when the price is so low that buyers are insensitive to the increase.

Does that answer your question? I somehow have this feeling that I've misunderstood it and replied with something totally irrelevant...

 

hmm...this is just my interpretation, so all you economists can / should correct me.

If the price of a raw material like gold goes up, I would think that people value gold more than cash. That means that what you could have previously bought for $1, will now cost more. The spedning power of your $1 will have gone down.

If your money doesn't go as far, you might not be able to afford that extra nice set of wheels, or that second carbon fiber mod. Since people will be buying less, then spending will go then.

I just made all tha tup, so tell me if I'm wrong.

 

I'm also not an economist, but I think your example might be a difficult one. Most currencies I believed are "backed" by gold. So in other words, the value of gold is directly related to the value of money. So if we know that you can get a car for 30,000 Euros or 30 bars of gold and suddenly gold was "worth" more, and you only needed 29 bars of gold to buy that car then the power of the Euro would also go up. However, if you are talking about other raw materials such as steel or something not used to measure currency, I believe it would increase the price and at least temporarily cause sales to decrease. Just my $.02

 

[QUOTE]Originally posted by RiceBurnerTX
[B]I'm also not an economist, but I think your example might be a difficult one.

 

[QUOTE]Originally posted by mns2k
[B]

Most currencies are what are called "fiat".

 

From a technical perspective the Euro is not fiat currency since there are gold reserves to cover the initial printing. In the strict definition the Euro is fiat currency in that you cannot redeem it for the gold that backs it while the old US standard permitted redemption.
I think that reading some of the economists reports is like reading an and for the newest dishwashing liquid that is 40% better but, they never say 40% better than what.

 

According to my quick calculations for the last three days gold closed at:

8/27 341.37 Euros
8/28 339.48 Euros
8/29 341.62 Euros

This is based on the spot price for gold in USD and the USD / Euro exchange rate. Offhand, it appears that the Euro is not on a gold standard; if it were the price of gold (in Euros) would be constant.

 

Inflation of tangible commodities. Gold, Real Estate, collectables and some art Etc.
Real valuables become more expensive as the paper money becomes less valuable. I'm sure you have heard of it taking a wheel barrel of paper money to buy a loaf of bread during World War 2. People jump into tangible commodities and out of paper money which drives up the value of the tangible commodities as more people flock into them. Hi demand of a rare commodity increases the percieved value of the commodity. Supply and demand! It takes more of your paper money to acquire tangible commodities as their percieved value increases. Look what has happened to real estate in California. More people wanting a limited supply of real estate drove prices up. A tangible commodity is something that nobody can make more of at any cost. ie. real estate. Especially prime location real estate. ie. coastal or beach front properties. There's only so much. ie. large flawless diamonds, rare gems and coins, gold, Monet, Manet, Da vinci, Van Gogh, S2000s, Etc. Our money is just paper and only has value because we believe that it does. Our money and most money has no backing. It's just like a check. Worst of all, paper money printing can be increased to where it has little or no value. Plates, Paper and ink.
If an asteroid hit earth today, how much do you think your paper money or check would be worth? Your credit cards? Zip! A can of beans might be worth more. That's why its so important to your net worth and retirement to own a nice home and garage before you buy that S2000 to put in the gargage. They may make better and faster S2000s but they aren't making any more real estate.
Hope this helped.