Money: what is it worth to you?

Essay by manginaboy April 2003

download word file, 5 pages 4.5 2 reviews

Downloaded 245 times

It's amazing how little the education system teaches us about money when it plays such a major role in every day of our lives. The food we eat, the electricity we pay to use, hot water bills not to mention luxury goods including computers, CD's and much much more.

Perhaps society believes that since we use money every day, it is common sense for how it is used. People know what they need to about money without worrying about intricate details.

Perhaps you don't notice the intricate details - do you understand what is meant by the strengthening of the Australian dollar? What about the prices of shares? Do you really know what all those bank fees and interest rates are for?

After one year at university, I studied two basic subjects: finance and economics. Economics explains the simple facts of money that we take for granted and expands on that (unfortunately with very little mathematical backing until second year university) whereas finance explains the intricacies of banking institutions, financial markets, borrowing and lending funds and so on.

Economics starts with a model called the supply and demand model. Basically, this model says that if demand for a particular good or service is very high, selling prices are raised. If demand is very low, selling prices are lowered. Let's consider each case separately.

If demand is too low, then a high price will not cover the cost of the limited demand. If you can double the customers by selling at 75% of the current price, there is more profit. (2*0.75 = 1.5*profit). Likewise, if you have very high demand, if you increase prices by 25% and only lose 1% of customers say, you get 0.99*1.25 ~ 1.24*profit.

The topic of this essay is what money means to you, so...