Premium
The measurement of the gains or losses to an enterprise through relative price changes: The terms‐of‐trade effect and real income
Author(s) -
Silver Mick
Publication year - 1992
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.4090130504
Subject(s) - relative price , economics , investment (military) , german , ex ante , service (business) , microeconomics , econometrics , macroeconomics , economy , archaeology , politics , political science , law , history
This paper provides a framework for measuring the terms‐of‐trade effect for an enterprise. This effect is the impact on the organization of changes in input to output prices as well as in the prices of goods and service upon which the income is utilized. The measurement of the effect is outlined with illustrative data and applied to the German Telecom sector, which has suffered particularly badly through adverse relative price changes. The case study of the German Telecom sector is also used to introduce the concept of real income. The framework advocated is argued to be particularly useful, since it allows not only the effects ex post of relative price movements to be evaluated, but also the effects ex ante of particular spending scenarios to be simulated (for example, investment). As such, it should be a useful addition to the ‘toolbag’ of managerial economists.