Are the high prices we are experiencing the result of greed or a true disaster or misfortune? As one of the largest countries and wealthiest we have a responsibility to be aware of the transactions that are taking place in our country and our world. There are all kinds of transactions. Honest and dishonest. Internal and international. Which ones apply to us? Are we only responsible for transactions we engage in or should we take into account the transaction others get involved in? Does their actions or transaction affect my life or are we living in an independent unit immured to what everyone else does? As a responsible citizen of this country and an intelligent consumer and a consumer advocate, I feel we must ask all of the questions mentioned above, further down this article and some that I am sure I failed to bring up.

What is a Transaction? Every time there is an exchange of good or services for money, that is called a transaction. Such transactions repeated multiple times per day everyday contribute to a healthy economy. The exchange of such good or services for money typically involves a percentage of profit. This profit is usually repeated at a larger scale for more profit.

A pair of jeans made for 10 dollars, turned around sold for 18 dollars will involve a certain level of capital to obtain or develop the jeans (10 dollars), a certain level of capital to market, transport, display and sell the jeans which is part of the operating expense (4 dollars) and finally a certain level of profit margin sometime called a margin 4 dollars. Income tax is usually paid on this amount. Do some companies incorporate the tax they have to pay into their pricing so they can assure their margin? It is possible to add another 5-10% to the price, let us say total of 19 dollars total sale witch brings margin up to 5 dollars total.
In this example 4 dollars is 22% percent of 18 dollars. Depending on the business, the product, or the service they provide range a 5% a very low profit margin up to 35% margin a healthy profit. The low profit margin businesses at times usually have a bonus added after a period attached to it as an incentive for good or continuous performance. A car salesperson may get 3-5% commission but a total sale within a period of 3-12 months may bring an additional bonus or the commission rate gets to a higher percentage such as 8-13%. Every business and manufacture functions differently so the rules vary for everyone to a degree.

Such mark up on prices when doing business as a Retailer/Reseller, wholesaler, Distributor, or manufacturer can be considered a fair price increase. I say can because notice the number of middlemen who are playing the part of being “In Business”. In this example there are 4 bodies that mark up the price anywhere from 5-35% increase. If every one of these selects a 35% mark up in the price, then take a wild guess who will pay the final price? Yes,”You” the consumer. Imagine now if there were more middlemen involved. Such as import tax, and fees. This typically adds an additional 2 more bodies to this structure. If there is an exclusive sales or distributor involved well, take another guess. The middlemen just increased again by 2 more adding a total of 8 bodies you the consumer will have to pay. Let’s not forget sales tax to our government you will also have to pay. So, the 10-dollar jeans now has become anywhere from 55 dollars (assuming 5% per every 8 bodies) to 170 dollars (22% per every 8 bodies) for the jeans. Do you see how quickly the cost adds up to 10, 15 or even 20 times the actual cost of the product before you get your hands on it? Believe it or not this is fair market pricing, and the businesses make these rules. Since you are not forced to buy it and you pay for it in cash or even use a credit card, you simply support that standard of practice. Congratulations. We just learned two valuable lessons. One is called inflation, and two, we all are responsible for the inflation, but often we turn with anger to our government for what we have actively agreed on our own free will as a fair transaction. Keep in mind we could have been more selective and ask the question “did I really need the product?” or “did I just wanted the product?” Very few of us ask these questions as an Intelligent Buyer or Responsible Consumer. To stay objective and focused with this topic, let’s not focus on Jeans, a required article of clothing just so we can function in our society and focus more on our behavior and how that contributes to inflation. If its easier, replace the word Jeans with a gold watch.

Inflation is the gradual but consistent increase of prices of goods and services, or in short increase in cost of living. The demand for the product increases and the amount of money needed to purchase the same product has increased or the value of the money for that product decreases therefore more money is needed. We see this on average every 8-12 years. In 2005-2008 we saw the prices of homes escalate without any signs of slowing down. People were buying homes with 10%,15%, 25% increase in asking price and made every attempt to purchase it even the value may not have been accurate. This can be a topic by itself, and will should be discussed separately. This buying frenzy is concerning because it has a psychological effect on consumers to continue to buy even if they cannot afford it. Their concern is if they do not buy it now the price will continue to go up and they will never be able to afford it. Now we realize that inflation is not just the consistent increase on pricing but also an emotional element and possibly irrational thinking associated with such phenomena.

Our government does contribute to this matter. Original intent was to be positive, unfortunately it can also be negative depending on personal ethics and moralistic practice. As a standard of practice or the inflation point of view, this is what they do to mitigate this problematic translation as we called it earlier. That is to control the spike in high prices and high cost of living compared to the general household income. Keep in mind there were two major parties involved. The businesspeople, in our example the minimum of 3-4 bodies starting with manufacturer and then the distributor, marketer and retailer who added no value to the product itself but sure did mark up the price.
Then it’s the other side, the consumer, you who agreed to pay for that product with whatever convenience you had gained from buying it from a second or a third party instead of direct from the manufacturer. That is if they deal with the public directly. Some cases that may not be true. The Federal Reserve tries to control inflation, or another wards the overspending by the people creating a high demand over supply. When we start going crazy buying beyond our need and increase the demand more than a supplier can offer then the prices continue to go up. So, what the federal reserve does is make the availability for money more scares. Example, increasing the interest rates making it more expensive to get money so as a result people stop buying as much or stop borrowing as much because money is less accessible. By controlling the money supply in the economy, they can control the inflation to a degree and keep things in check. A healthy economy for United States historically been 2-3% as an ideal inflation rate. Unfortunately, it is not always true. When the economy is slowing down and moves into a Recession, and the economy needs a little boost or a push, feds decrease interest rates, banks have access to more money, therefore they can lend more out at a cheaper rate. Recession is Recessions generally occur when there is a widespread drop in spending or transactions as we mentioned earlier which can also be referred to as a negative economic growth. This prevents a continuous down roll of recession and into a dangerous territory of Depression. A consistent downturn in our economy, although it is part of a business or economic cycle, it can be concerning and requires a certain level of finesse to stimulate the market and turn the ship around to production again. The feds job is not that easy and it may be a little more complicated than the picture I am drawing today. The constant juggling act can be challenging knowing when to put money back into the circulation by decreasing interest rates. As you qualify easier for a credit cards and loans much easier than you are more likely to go out and buy more again. This can vary from Restaurants, jeans, cars, and jet skis, services such as building a pool or additional room go on vacations or buy a home or a business.

The “real need” is a new topic as large corporations with the help of our government are trying to control the basic necessities such as utilities, beef, vehicles to get to work and housing/land. Please think of how powerful we the consumer are and how quickly we can bring any business down to its knees by simply not buying. Covid shutdowns demonstrated that to the fullest. Unfortunately, the wrong business went down as a result. The mom-and-pop shops. This is why I claim price gouging is my favorite topic for it is a sensitive topic for us all and must be addressed immediately by every one of us. My position in this article is a consumer advocate.

Source: Cambridge Dictionary, Merriam Dictionary, Wiki.