Question

5. Taxes and the impact on relative price In her school's food court, Mary notices that a cup of yogurt costs $3.00 and a bag of chips costs $2.00. Since Mary just finished studying for an economics exam, she immediately calculates that the relative price of a cup of yogurt is per Suppose that school administrators want to encourage healthy choices and decide to impose a $0.75 price increase on bags of chips. Given that the absolute price of a cup of yogurt is unchanged, the relative price of a cup of yogurt Grade It Now Save & Continue Continue without saving

Answer 1

Relative Price is price of one commodity in comparison to other commodity. In simple terms its a price ratio

So,

Relatibe price of yoghurt = Price of yoghurt cup / Price of a bag of chips

So, Relative price of a cup of yoghurt = $3/$2=1.5

Relative price of a cup of yoghurt is 1.5 cup per bag of chips.

After change in price

Increase in price of bag of chips = $0.75

So, New price of a bag of chips = $2 + $0.75 = $2.75

Price of Yoghurt is same = $3

So, Relative price of yoghurt = $3/$2.75 = 12/11 = 1.09

Relative price of a cup of Yoghurt is 1.09