Definition of Purchasing Power

The term purchasing power is typical of the economic vocabulary. The economy It is the science that studies how a society is organized to satisfy its material needs. The relevance of the economy is very evident and we are constantly talking in economic terms: gross domestic product, profit, balance of payments, capital, income ...

If we use the term purchasing power, we are referring to an aspect that affects any citizen. Let us think of a worker in a country (France) that has income per month of 2000 euros. With this amount of money he can buy a certain number of products and goods. The purchasing power of this French worker is the relationship between his money and the goods and services he can buy. This person has a purchasing power with a value x and this value will increase or decrease depending on
of the price of the products you obtain. If your income remained at 2,000 euros and prices were rising every year, your purchasing power would have decreased.

For the purchasing power of citizens to grow or decrease there are a series of factors economic factors involved: inflation and the value of the currency, mainly. Inflation is the evolution of prices and is calculated considering a series of basic necessities and the transformation in their price in a given period. The value of the currency is also a relevant aspect. The higher the force of a currency, the greater the purchasing power of the citizens who use it.

Purchasing power can be calculated from an individual point of view and it is also possible to analyze it comparatively. Imagine an English citizen who earns 2,000 pounds a month and an American who earns 2,000 dollars. The number of assets each obtains with their income will determine the value of their currency relative to the other.

The organizations Trade unions are very aware of the evolution of the purchasing power of the citizens of a country. If it decreases or simply is maintained, the unions demand a salary increase to recover the loss of purchasing power. At the same time, the unions consider it to be a key parameter of the economy and demand measures for workers to improve their living conditions through purchasing power. The economy is knowledge that affects all levels of life, both individually and in a global sense (that is why we speak of microeconomics and macroeconomy ). Each economic reality has its own mechanisms and trends. And purchasing power is undoubtedly a determining parameter to understand the economic situation of a person, a family or a country.