Download Nominal - Phoenix Union High School District

Economics
At the Movies: Real v. Nominal Movie Box Office Sales
.
Inflation affects the purchasing power of the income that
we earn by decreasing the amount of goods and services
that a dollar will buy. Inflation also distorts the value or
worth of different items over time making it difficult to
compare peoples’ incomes, companies’ sales, or economic
statistics over a long time period. In this activity we will be
comparing the top grossing movies of all time and then
adjusting their nominal sales into their real (inflation
adjusted) sales. Nominal values do not take into account
changes in price while Real values do. Real more
accurately reflects the growth of GDP, changes in people's
wages, or when measuring the value of anything over a
period of time.
What you will need:
.
1. A calculator
2. Internet Access or the equivalent
handouts
3. This handout
Part A: Open your web
.
browser to this web site (or
look at the handouts
provided):
http://www.boxofficemojo.com/
alltime/domestic.htm
1. What are the top 5 grossing movies of all time (in nominal
terms)?
Write the Rank, Name, $ amount, and year released. Please round
to whole numbers
Please round to whole numbers.
1. Avatar
$761
2009
2. Titanic
$659
1997
3. The Avengers
$623
2012
4. The Dark Knight
$535
2008
5. Star Wars I:
The Phantom Menace
$475
1999
Movies that may not do well in the U.S. often do well internationally
2. How much have Star Wars IV: A New Hope,
Gone with the Wind, Jaws and Snow White and the
Seven Dwarfs grossed (in nominal terms)? Write
the Rank, Name, $ amount grossed, and year
released.
Please round to whole numbers.
6. Star Wars IV: A New Hope
$461 1977
75. Jaws
$260
155. Gone With the Wind
$199 1939
177. Snow White and the Seven Dwarfs
$185
1975
1937
You are now going to adjust the films in #1
and 2 above into real (2014) dollar terms.
As you do this you are making one
assumption/simplification that you need to be aware of. You
are going to assume that all of the sales for a particular
movie took place in the year it was released which is not the
case. For example, Star Wars, Episode 1: A New Hope was
released in 1977 but has been re-released in the theaters
twice, including for its 20th anniversary in 1997 when
several additional computer generated scenes were added.
This assumption will tend to overstate the real dollar amount
for movies that have been re-released, i.e. Star Wars Trilogy,
ET, Gone With the Wind, Snow White and the Seven
Dwarfs, and others.
Open your web browser to this web site (or look at the
handouts provided):
http://bit.ly/1HsIxUT
It contains the CPI data from 1913 to the present. The CPI
value for a given year is a measure of that year's cost-ofliving compared to that of a 'reference date'; for the data
here, that base cost is the average for the time span 19821984. The 1993 U.S. urban "All Items" CPI of 144.5 means
that in 1993, things cost 44.5 percent more than they did in
82-84. To calculate this, use the following
formula:
(Start Year Box Office $ ÷ Start Year CPI) x
Target Year CPI = Target Year Box Office $
(Start Year Box Office $ ÷ Start Year CPI) x
Target Year CPI = Target Year Box Office $
Example: Mrs. Doubtfire grossed $219,000,000
(Start Year Box Office $) in 1993 and the CPI for
1993 was 144.5 (Start Year CPI). Then use the CPI
for the most recent FULL year (236.7 in 2014).
($219 ÷ 144.5) x 236.7 = $358.7 million
So the $219 million that Mrs. Doubtfire made in
1993 would be the equivalent worth of a film that
made $358.7 million in 2014.
3. Now adjust the 9 films from questions #1 and 2 into real
(2014) dollar terms (Show your work!).
Avatar 761 ÷ 214.5 x 236.7 = $839.8 million
Titanic: 659 ÷ 160.5 x 236.7 = $971.9 million
The Avengers 623 ÷ 229.6 x 236.7 = $642.3 million
The Dark Knight 535 ÷ 215.3 x 236.7 = $588.2
million
Star Wars: E1- The Phantom Menace 475 ÷ 166.6
x 236.7 = $674.9 million
3. Now adjust the 9 films from questions #1 and 2
into real (2014) dollar terms (Show your work!).
1977 Star Wars IV: A New Hope- 461 ÷ 60.6 x
236.7 = $1.80 billion
1975 Jaws: 260 ÷ 53.8 x 236.7 = $1.14 billion
1939 Gone With the Wind: 199 ÷ 13.9 x 236.7 =
$3.39 billion
1937 Snow White and the Seven Dwarfs: 185 ÷
14.4 x 236.7 = $3.04 billion
4. What is the top film in real terms?
Gone With the Wind! $3.39
billion in real (2014) terms
compared to only $839.8 for
Avatar and $971.9 million for
Titanic.
Box Office Mojo list of all record holders
Which are the most successful films at the box-office?
AVATAR, James Cameron’s epic 3D sci-fi movie went into
general release around the world on Friday, December 18, 2009.
The film reportedly cost over $300m to produce, making it one
of the most expensive films ever. Such spending, however, is no
guarantee of box-office success. A list of the highest-grossing
films in America (adjusted for ticket-price inflation) reveals that
“Gone with the Wind”, which cost just $61m to make (in today’s
prices), made the most money.
Avatar is expected to collect over $150m in its opening weekend
alone. Mr Cameron seems to have a magic touch; “Titanic”, the
most recent blockbuster on this list, is another of his films.
Source:
The
Economist
12-17-2009
5. Why would the movie studios
(Universal, Disney, Sony, Paramount,
etc.) of today want to focus on nominal
sales figures? Hint: Think about the
marketing of the newer films.
It makes their films appear to be
bigger hits than they really are when
compared to past films. It gives the
appearance of Blockbuster status.
Part B
For the following questions use the equation below (Show
your work!):
Nominal (present) interest rate inflation rate = Real interest rate
1. When you place your money into a savings
account the bank pays you interest stated in nominal
terms. Assume the bank is paying you 2% interest
and the inflation rate is currently 1%. What are you
making in real terms?
2% - 1% = 1% real interest rate
2. Now assume inflation increases to 3%. Now what are you
making in real terms? What is the problem? How can you
correct the problem (where else might you save/ invest your
money)?
2% - 3% = -1% real interest rate.
You have a negative rate of return. You are, in
effect, losing money.
You might place your money in an account with
a higher rate of return, i.e. Certificate of
Deposit, Money Market Account, Bond or Stock
Mutual Funds.
Part C
For the following questions use the equation below (Show your work!):
Nominal (present) wage increase - inflation rate = Real wage increase
When you earn money working your employer pays you a wage or salary
stated in nominal terms. Your employer announces that everyone is
receiving a 3% raise. The inflation rate is currently 1%. What kind of raise
have you received in real terms? Why might employers want their
employees to focus on nominal wage increases rather than real increases?
3% - 1% = 2% real wage increase.
If employees focus solely on their nominal wage raise
they will think they have gotten a raise when in fact the
purchasing power of their paycheck will have declined.
This will allow employers to save money and pass the
cost of inflation on to their workers.
2. Now assume that you receive the same raise but inflation
increases to 3%. Now how much has your income increased in
real terms? What is the problem? How can you correct the
problem?
3% - 3% = 0%
Real wages have not increased!
Always try to ask for a raise that is greater
than the current or expected inflation rate.
Are gas prices really high?
Gasoline: Real v. Nominal Chart from Dept of Energy
Were retail gas prices in the
summer of 2008 really near
record highs?
Yes. In the Summer of 2008 they
were, in both nominal and real
terms.
No, currently (March, 2015) they are
not, in nominal or real terms, but
they are close.
June, 2008 had the highest real gas prices at $4.38/gallon in 2014
dollars. Chart shows monthly average prices, 1976-2014.
Even though in nominal terms gasoline prices have trended
up, gasoline’s long term real trend has been downward, but
with dramatic short term increases. Chart shows annual
average prices, 1919-2011.
$1.60-$2.50 is the approximate range that real gas prices have been in.
The late 1970’s-early 1980’s as well as 1999-Present
are the 2 periods where gas prices have made big
increases. Chart shows annual average prices, 19192011. Why?