Real income, relative prices, and
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:
The real income in terms of smoothies can be obtained by substituting the respective values in Equation (1) as follows:
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).
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:
The relative price of smoothies in terms of popcorns is 1.
The opportunity cost of a smoothie can be calculated using the following equation:
Thus, the opportunity cost of buying one smoothie is the cost foregone to buy one bag of popcorn.
Opportunity cost: The opportunity cost refers to the benefits given up in the process of obtaining some other benefits.
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Chapter 9 Solutions
Microeconomics (13th Edition)
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