If the price of one good changes, what happens to the relative price and the slope of the household's budget line?
What will be an ideal response?
A relative price is the price of one good divided by the price of another good. For example, the magnitude of the slope of the budget line (Pmovie/Psoda) is the relative price of a movie in terms of soda. This relative price shows how many sodas must be forgone to see an additional movie. A fall in the price of the good on the horizontal (vertical) axis increases the total affordable quantity of that good, decreases its relative price, and decreases (increases) the magnitude of the slope of the budget line.
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An insurance agent rents a building and has a three-year lease. An increase in the rent for the building increases the agent's
A) total cost and average variable cost. B) total variable cost and average variable cost. C) total fixed cost and total variable cost. D) total fixed cost and average fixed cost. E) total variable cost and total cost.
The best measure of the standard of living is
A) real GDP per capita. B) real GDP. C) nominal GDP per capita. D) nominal GDP.