How Does Inflation Affect the Stock Market?
When demand is inelastic, a price rise lowers sales by less than it lifts the price, so revenue rises.
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1.What is pricing power?
When demand is inelastic, a price rise lowers sales by less than it lifts the price, so revenue rises.
2.Each shop earns 1,000 and spends 800. Costs rise 10 percent. What are the new costs?
Marge raises prices 10 percent and keeps her customers: sales 1,100, profit 220.
3.Leo raises his boat price 10 percent and one in ten customers leaves. What is his profit?
Sales are 990 and costs 880, so profit falls to 110.
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Sources (4)
- Ibert, Knox, Vazquez-Grande: Are Stocks Pricing in Recession Risks? Evidence from Dividend Futures, FEDS Notes, Federal Reserve Board (18. August 2022)
- Boudoukh, J., Richardson, M.: Stocks are a Good Hedge for Inflation (In the Long Run), Working Paper (Wharton), spaeter AER 1993 (Stock Returns and Inflation: A Long-Horizon Perspective)
- Principles of Economics 3e, 5.3 Elasticity and Pricing (OpenStax)
- Eigene Rechnung: Barwert
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