   Chapter 4, Problem 5WNG

Chapter
Section
Textbook Problem

The absolute prices of goods X, Y, and Z are $23,$42, and $56, respectively. What is the relative price of X in terms of Y?. What is the relative price of Y in terms of Z? What is the relative price of Z in terms of X? To determine The relative price. Explanation The relative price of a good is measured as the price of a good expressed in terms of another good. When the absolute prices of two goods X and Y are given, the relative price of good X in terms of good Y can be calculated using Equation (1) as follows: Relative priceX=Absolute PriceXAbsolute PriceY (1) Given the absolute price of good X is$23, the absolute price of good Y is $42, and the absolute price of good Z is$56.

The relative price of good X in terms of good Y can be calculated by substituting the respective values in Equation (1) as follows:

Relative priceXY=2342=0.55

This implies that 1X=0.55Y

Thus, the relative price of good X in terms of good Y is 0

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