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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

If the price of flash memory chips used in manufacturing smartphones decreases, what will happen in the market for smartphones? How will the equilibrium price and equilibrium quantity of smartphones change?

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

Suppose that in a recent market period,the following relationship existed between the price of

tablet devices and the quantity supplied and quantity demanded.

Graph the supply and demand curves for tablet

devices using the information in the table.What are

the equilibrium price and quantity?If the industry

price is$340,is there a shortage or surplus of tablet

devices?How much is the shortage or surplus?

Identify which of the following would generate an increase in the market demand for tablet devices, which are normal goods.

a. A decrease in the incomes of consumers of tablet devices

b. An increase in the price of ultrathin computers, which are substitutes

c. An increase in the price of online apps,which are complements

d. An increase in the number of consumers in the market for tablet devices

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?
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