Eco 372 - Product Purchases and the Economy

Product Purchases and the Economy

Tara Rodriguez

ECO/372

3/28/16

Paul Updike

Product Purchases and the Economy

A basic understanding of economic principles is something every consumer owes it to themselves to learn.  This knowledge will lead to a better understanding of market values, inflation, and consumer confidence, among other things and may lead to wiser purchasing choices, especially on big-ticket items such as gold, homes, vehicles, or appliances. One such purchase would be that of a diamond engagement ring.  There are many factors that go into deciding to buy an engagement ring, not the least of which is deciding if the person one is dating is the partner they want to spend the rest of their life with.  Current salary and budget are the first things to consider.  Also needing to be taken in account are timing, whether or not there is a plan to finance the ring, and how the gold and diamond markets are performing.  Lastly, one should consider times prices might be lower due to an increase in production (i.e., near the holidays) so as to get the best deal.

Economic Factors and their Effect

The two main economic indicators that reflect the strength of the economy in regards to ability or wherewithal to purchase an engagement ring are Consumer Price Index (CPI) and Producer Price Index (PPI).  CPI is a measurement of the changes paid for goods or services by consumers for a specific time period.  PPI measures the changes in the price of goods sold to producers at the wholesale level ("The Top 10 Economic Indicators: What to Watch and Why", 2003). 

The CPI is in essence the measure of the changes to an individual’s cost of living.  It provides an estimate of what the rate of inflation related to purchasing goods and/or services is. This does not include every single item a person can, will, or may buy, but rather looks at a sample of several hundred goods and services across 200 item classifications.  The CPI does not take into consideration income, Social Security taxes, or investments in stocks, bonds or life insurance, but does include all sales taxes associated with the purchases of the particular goods and services.  CPI is the best indicator of inflation that the nation has to rely on; once changes in inflation are noticed, the Fed can plan to take action to change its monetary policy, if needed ("The Top 10 Economic Indicators: What to Watch and Why", 2003).