Purchasing power is a concept economists use when they discuss a person’s ability to buy the same amount of goods from one time period to the next with the same income. For example, a person with an income of $50,000 could buy a collection of goods worth $50,000. However, that person’s purchasing power will fall if inflation drives the prices for those same goods higher than $50,000. The buyer’s purchasing power has declined because that same $50,000 in income now buys less than $50,000 in goods.
Glossary Term