The value of fiat currency (government issued currency) is calculated by the government, as they can manipulate its value very easily. There is no confusion as to how the spending power is calculated, as the government can limit and create supply at any time.

Fiat currency cannot be converted to BTC, it instead has to be exchanged.

• How do these exchangers decide how much money they're prepared to buy or sell Bitcoins for?
• Is the automated algorithm for creating 50 BTC blocks responsible for the fluctuation of prices in the Bitcoin market?
• It is the citizens of the world, not the government who decided how much Bitcoins were worth. So how did they do it?
• How is the purchasing power of Bitcoins calculated?

When Bitcoin first came out, I imagine there was only 50 BTC in existence, and there was only 1 seller accepting Bitcoins as payment. How did that seller decide his prices for Bitcoins?