If the price of kale increases by 2% during the year due to increased demand and...

If the price of kale increases by 2% during the year due to increased demand and the average price level increases by 4% only, then it can said that,

The relative price of kale increased compared to other goods and people selling kale would be worse off.

The relative price of kale increased compared to other goods and people selling kale would be better off.

The relative price of kale decreased compared to other goods and people selling kale would be better off.

The relative price of kale decreased compared to other goods and people selling kale would be worse off.

Solutions

Expert Solution

It shall be noted that the price of Kale increases by 2% whereas the average price level increases by 4%

P1Kale = (1+0.02)P0Kale

P1AVG = (1+0.04)P0AVG

P1Kale/P1AVG = 0.980769*(P0Kale/P0AVG)

This shows that the relative price of Kale has decreased.

Thus, in real terms, the seller of Kale is worse off.

Thus, the correct answer is - The relative price of kale decreased compared to other goods and people selling kale would be worse off.

Rahul Sunny answered 2 years ago

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