What happens to the purchasing power of a consumer when the price of goods decreases?

When the price of goods decreases, the purchasing power of a consumer increases. Purchasing power refers to the quantity of goods and services that a consumer can buy with a given amount of money. If prices fall, consumers can purchase more with the same amount of money, meaning they have more ability to buy goods and services than before.

For example, if a consumer has $100 and the price of an item they regularly buy drops from $20 to $15, they can now buy more of that item (or other items) with the same $100. This increase in the variety or quantity of goods they can purchase reflects an enhancement in their effective purchasing power.

Understanding this relationship is critical in economics, as it connects the concepts of consumer behavior, price elasticity, and overall economic well-being.