Question

In: Economics

Term paper 1909 and 1927. Consider how these prices compare to the price of a car today. Why are people willing (and able) to pay more for a car today than they were in the early 1900s?

Term paper 1909 and 1927. Consider how these prices compare to the price of a car today. Why are people willing (and able) to pay more for a car today than they were in the early 1900s? 

Solutions

Expert Solution

The Bureau of Labor Statistics keeps track of annual inflation rates and is a great resource for comparing today's prices to those of yesteryear. A metric called the Consumer Price Index (CPI) is especially useful.

Rising Inflation and the Dollar
The BLS also makes available an inflation calculator to find out how much inflation has degraded the dollar during a certain period. In our case, the inflation of 1900 is different from 2020, so the car prices will be low when compared to 2020. Also median wage of a worker was also low in 1900 in comparison with 2020. So as infaltion increases wages also increase. So a worker can afford the car at high price.
Because wages, Social Security payments, and taxes are adjusted for inflation annually, however, it would seem that while things may cost more than they did 100 years ago, people should, in theory, be making more money to pay for those things. The information provided by the CPI doesn't show the cost of living change directly, but the amount of price change that is not attributable to inflation can be extrapolated from the CPI figures.


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