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Chapter 3: Q. 3.2 (page 49)

Discuss the difference between money prices and relative prices

Short Answer

Expert verified

Money prices are absolute while relative prices are in comparison to another.

Step by step solution

01

Step1. Introduction

There exists conceptually two prices in economics: money prices and relative prices.

02

Step2. Explanation

Money price refers to the exact price of a commodity based on the cost incurred for its production. It is hence an absolute price of a commodity. Eg. price of an apple is Rs 10.

Relative price on the other hand is measured in comparison to another commodity. It is used to make comparisons between different goods.

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Most popular questions from this chapter

Consider the market for paperbound economics textbooks. Explain whether the following events would cause an increase or a decrease in supply or an increase or a decrease in the quantity supplied.

a. The market price of paper increases.

b. The market price of economics textbooks increases.

c. The number of publishers of economics textbooks increases.

d. Publishers expect that the market price of economics textbooks will increase next month.

Consider the following diagram of a market for one-bedroom rental apartments in a college community.

a. At a rental rate of \(1,000 per month, is there an excess quantity supplied, or is there an excess quantity demanded? What is the amount of the excess quantity supplied or demanded?

b.If the present rental rate of one-bedroom apartments is\)1,000 per month, through what mechanism will the rental rate adjust to the equilibrium rental rate of\(800?

c.At a rental rate of\)600 per month, is there an excess quantity supplied, or is there an excess quantity demanded? What is the amount of the excess quantity supplied or demanded?

d.If the present rental rate of one-bedroom apartments is \(600 per month, through what mechanism will the rental rate adjust to the equilibrium rental rate of\)800?

Give an example of a complement and substitute in consumption for each of the following items.

a.Bacon

b.Tennis racquets

c.Coffee

d.Automobiles

Explain the law of demand

Assume that the cost of aluminum used by soft-drink companies increases. Which of the following correctly describes the resulting effects in the market for soft drinks distributed in aluminum cans? (More than one statement may be correct.)

a. The demand for soft drinks decreases.

b. The quantity of soft drinks demanded decreases.

c. The supply of soft drinks decreases.

d.The quantity of soft drinks supplied decreases.
See all solutions

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