DEALING WITH RISING PRICES

 If you ever want to understand a problem go back to basics. With this in mind I have been wondering why prices seem to be rising so quickly. Finally, a business friend explained it to me in simple terms. He said let's take dog food for example. You are selling 10 packs of dog food a week for $10 per pack. At the end of the week you therefore have an income of $100. However, you want to cut costs so you lay off 2 workers and save $1 per worker (i.e., $2 as the salary of each worker is $1 a week.) But it takes 7 workers to make 10 bags of dog food and now you are 2 down from the 7 that you had. So? What to do? You want to still make the $100 a week and 5 workers can only produce 7 bags a week. There will be an obvious shortfall.

So you raise the price of the dog food to $15 a pack. The 5 remaining workers are able to produce 7 packs a week. As it is, 3 buyers will not be able to afford the increased price so you will now be selling 7 bags a week at $15 a pack instead of 10 packs at $10 each. But when you were producing the 10 packs your gross income was then $100 a week. Now you are producing 7 packs but your gross income is now $105 a week So you are now $5 a week better off. 

But it doesn't stop there. Because you laid off 2 workers you are now $2 a week better off by saving on the salaries. And this has to be added on to the extra $5 a week that you are making from the price hike.

It is admittedly a little confusing, but if you do the maths from this very, very simple example, you will get the point.

Putting it simply, we are clearly being ripped off by highly unethical business practises and by the Government aiding and abetting them by not doing anything and allowing the argument that the inflation that we are all seeing is imported and therefore there is nothing that can be done about it. Like all arguments this has a little bit of truth in it. Frankly, this is happening not just here but around the world. But that doesn't mean that we can't do anything or shouldn't even try to do something about it.