Suppose that at first the price of a jar of peanut butter is $15 and the price of a jar of jelly is $9. Then, the price of a jar of peanut butter changes to $30 and the price of a jar of jelly changes to $21. What has happened the money prices and relative prices of these two goods?

Question

Zachariah Ward

Business

4 September, 03:10

Suppose that at first the price of a jar of peanut butter is $15 and the price of a jar of jelly is $9. Then, the price of a jar of peanut butter changes to $30 and the price of a jar of jelly changes to $21. What has happened the money prices and relative prices of these two goods?

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Alvaro Mckay · Answer 1

Economic price analysis can be done according to absolute price and relative price. The absolute price is the selling price of the product. Thus, if the absolute price of peanut butter changed from $ 15 to $ 30 and that of jelly changed from $ 9 to $ 21, there was an increase in the absolute price of both goods. In the case of peanut butter, the increase was 100%, double, and in the case of jelly, 133%, more than double.

Relative price is a measurement that aims to compare prices between two products. This is the percentage found by dividing the price of the two products. The relative price of jelly for peanuts was $ 9 / $ 15 = 0.6. After the price increase for both products, the relative price changed to $ 21 / $ 30 = 0.7. Thus we say that the relative price of jelly for peanuts has increased. This means that compared to previous values, jelly has become more expensive compared to peanuts. Previously, the jar of jelly cost 60% of the price of the peanut jar. After the price increase, the price of jelly started to cost 70% of the price of peanut jar.