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According to my textbook, in the chapter on inflation,

"When a price rises, buyers of that good must pay more, but sellers get more revenue when they sell it. The loss in buyers' purchasing power is matched by the rise in sellers' purchasing power."

I understand the part of falling purchasing power for buyers (since each dollar can now buy less compared to previously), but why so for the seller? For instance, suppose each orange was sold for 1 dollar in the past. The price then rose to 2 dollars (reflecting the rise in general price level in the economy) - but if 2 dollars post-inflation is worth the same as 1 dollar before the price rise, then there really is no change in the sellers' purchasing power right? When the seller uses the 2 dollars to buy other things, it will still fetch him the same as 1 dollar did previously!

I'm not sure if I'm missing something here, and would really appreciate some clarification, thank you!

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  • $\begingroup$ Which text book is it ? Your comprehension may be correct depending on omissions. $\endgroup$
    – keepAlive
    Dec 26, 2019 at 9:08
  • $\begingroup$ @keepAlive it's "Economics: Principles & Applications" 6th edition by Robert E. Hall and Marc Lieberman (pg. 580). $\endgroup$
    – Charlz97
    Dec 26, 2019 at 13:09

2 Answers 2

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One price relative to others

The key parts of the statement "When a price rises, buyers of that good must pay more, but sellers get more revenue when they sell it. The loss in buyers' purchasing power is matched by the rise in sellers' purchasing power." are "a price" and "that good".

If the price of oranges increases from \$1 to \$2, then it does not imply that 2 dollars post-inflation is worth the same as 1 dollar before the price rise; we could expect some devaluation, but it would be proportional to the impact of oranges in the whole economy.

Oranges increasing in price means that the purchasing power of people who buy oranges is decreased, but the purchasing power of people who sell oranges is increased, since they can buy more stuff (e.g. apples) from their orange-derived revenue than before.

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  • $\begingroup$ Right now and also now and may be later, Wikipedia says " inflation or price inflation is a general rise in price level ". As you correctly pointed out, the question asked involves "a price" which is not the same as saying there is a "general rise". $\endgroup$
    – H2ONaCl
    Sep 26, 2020 at 21:08
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Am not a trained economist, but I would think this may be a temporary effect. A merchant may sell his newly purchased items for $2. Scruples aside, he could sell his existing inventory of that item (purchased at the pre-inflation wholesale price) at the post-inflation retail price. Again, an opportunistic, but temporary, advantage.

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