EBK ECONOMICS
EBK ECONOMICS
13th Edition
ISBN: 8220106799642
Author: PARKIN
Publisher: PEARSON
Question
Book Icon
Chapter 9, Problem 1SPA
To determine

Real income, relative prices, and opportunity cost.

Expert Solution & Answer
Check Mark

Explanation of Solution

The given income of S is $12, the price of popcorn is $3 per bag, and the price of a smoothie is $3.

The real income can be obtained using Equation (1) as follows:

Real income=Nominal incomePrice of a good (1)

The real income in terms of smoothies can be obtained by substituting the respective values in Equation (1) as follows:

Real income=123=4

The real income in terms of smoothies is 4.

The real income in terms of popcorns can be obtained by substituting the respective values in Equation (1).

Real income=123=4

The real income in terms of popcorns is 4 bags.

The relative price of smoothies in terms of popcorns can be calculated as the ratio of their nominal prices using the following equation:

Relative priceSmoothies/popcorn=PriceSmoothiesPricePopcorn=33=1

The relative price of smoothies in terms of popcorns is 1.

The opportunity cost of a smoothie can be calculated using the following equation:

Opportunity costSmoothies/popcorn=PriceSmoothiesPricePopcorn=33=1

Thus, the opportunity cost of buying one smoothie is the cost foregone to buy one bag of popcorn.

Economics Concept Introduction

Opportunity cost: The opportunity cost refers to the benefits given up in the process of obtaining some other benefits.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
What are some of the question s that I can ask my economic teacher?
Answer question 2 only.
1. A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate fund, and the third is a (riskless) T-bill money market fund that yields a rate of 8%. The probability distributions of the risky funds have the following characteristics: Standard Deviation (%) Expected return (%) Stock fund (Rs) 20 30 Bond fund (RB) 12 15 The correlation between the fund returns is .10.
Knowledge Booster
Background pattern image
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
Principles of Microeconomics
Economics
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Text book image
Principles of Microeconomics (MindTap Course List)
Economics
ISBN:9781305971493
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Text book image
Micro Economics For Today
Economics
ISBN:9781337613064
Author:Tucker, Irvin B.
Publisher:Cengage,
Text book image
Economics For Today
Economics
ISBN:9781337613040
Author:Tucker
Publisher:Cengage Learning
Text book image
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning
Text book image
Microeconomics
Economics
ISBN:9781337617406
Author:Roger A. Arnold
Publisher:Cengage Learning