Question

If the relative price of one unit of good y is 0.25 units of good z, then it follows that the absolute price of good z can be __________ and the absolute price of good y can be __________. a. $4,000; $2,000 b. $1,000; $2,000 c. $2,000; $1,000 d. A and c

Answer 1

Answer: None of the above

Explanation: f the relative price of one unit of good y is 0.25 units of good z, it means that

$P_{y} = 0.25 * P_{z}$

Out of the given options none satisfy this condition, for

a. $P_{y} = 0.25 * P_{z}$

$P_{y} = 0.25 (4000) = 1000 \neq 2000$

b. $P_{y} = 0.25 * P_{z}$

$P_{y} = 0.25 (1000) = 250 \neq 2000$

c. $P_{y} = 0.25 * P_{z}$

$P_{y} = 0.25 (2000) = 500 \neq 1000$

Therefore, none of the above options satisfy the relative price equation.