Chapter 3, Problem 1SPA

To determine

The relative price.

Explanation of Solution

Given information:

It is given that the money price of a carton of milk is $2.01 and a gallon of gasoline is $3.63.

The relative price is the ratio of the price of a commodity expressed in terms of another commodity. The relative price of gallon in terms of milk can be calculated using the equation (1).

$\text{Relative price of gasoline}=\frac{\text{Money price of gasoline }}{\text{Money price of milk}}$ (1)

Substitute the respective values in equation (1), the relative price of gasoline in terms of milk.

$\begin{array}{c}\text{Relative price of gasoline}=\frac{\text{3}\text{.63 }}{2.01}\\ =1.81\end{array}$

Thus, the relative price of gasoline in terms of milk is $1.81.

Economics Concept Introduction

Money price: Money price is known as the price of a good in dollar terms.

Relative price: Relative price is known as the price of one good expressed as ratio of another good.