What is the difference between a money price and a relative price? When the demand and supply model predicts that the price of coffee will rise, is the model predicting that the money price rises or the relative price rises?
What will be an ideal response?
The money price of a good is the number of dollars that must be given up in exchange for it. A relative price is the opportunity cost of a good in terms of another good. A relative price of good X is the quantity good Y that we forgo to get a unit of good X. When the supply-and-demand model predicts that the price of coffee will rise, it is the relative price, that is the model predicts that the price of coffee will rise relative to the average price of other goods. The money price might or might not rise.
You might also like to view...
Use the following table to answer the next question.The table shows a private open economy (no government). All figures are in billions of dollars.Real GDPC + INet Exports$400$420$20450460205005002055054020600580206506202070066020The equilibrium real GDP is
A. $600. B. $700. C. $650. D. $550.
If the government borrows to purchase goods and services, today's consumption of government goods and services will be paid for by
A) today's taxpayers and tomorrow's taxpayers in even shares. B) today's taxpayers. C) future taxpayers. D) government employees.
What do economists mean when they say that there is no such thing as a free lunch?
What will be an ideal response?
The inside lags for monetary policy are relatively long compared to those for fiscal policy
Indicate whether the statement is true or false