   Chapter 4.3, Problem 1ST

Chapter
Section
Textbook Problem

If the absolute (or money) price of good A is $40 and the absolute price of good B is$60, what is the relative price of each good?

To determine

The relative price.

Explanation

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 A and B are given, the relative price of good A in terms of good B can be calculated using Equation (1) as follows:

Relative priceA=Absolute PriceAAbsolute PriceB (1)

Given the absolute price of good A is $40 and the absolute price of good B is$60.

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

Relative priceA=4060

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