Suppose the price of wheat has fallen from $3 to $2 per bushel and that the price of newsprint has fallen from $200 to $100 per tonne.The relative price of wheat in terms of newsprint

Question

Quizplus · Accepted Answer

To calculate the relative price of wheat in terms of newsprint, we need to find out how many tonnes of wheat can be obtained by selling one tonne of newsprint.

Initially, the price of newsprint was $200 per tonne. Using this, we can find out how many tonnes of wheat can be obtained for $200:

$200 ÷ $3 per bushel = 66.67 bushels of wheat

After the price drop, newsprint now costs only $100 per tonne. Using this new price, we can find out how many tonnes of wheat can be obtained for $100:

$100 ÷ $2 per bushel = 50 bushels of wheat

Comparing the two values, we see that the number of bushels of wheat that can be obtained for one tonne of newsprint has decreased from 66.67 to 50. This means that the relative price of wheat in terms of newsprint has increased, i.e., you now need more newsprint to buy the same amount of wheat as before. Therefore, the answer is B.

Suppose the Price of Wheat Has Fallen from $3 to $2