Purchasing power refers to the amount of goods and services that can be bought with a specific amount of money. It is influenced by factors such as inflation, income levels, and the overall economy. When prices rise due to inflation, purchasing power decreases, meaning that consumers can buy less with the same amount of money. For example, if the price of bread increases from $1 to $2, the purchasing power of $1 has effectively halved for that item. Understanding purchasing power helps individuals and businesses make informed financial decisions and assess their economic well-being.