Assume there are two goods in an economy: bread and bottled water. Assume bread sells for $2 per loaf and water sells for $1 per gallon the first year and in the second year the price of a loaf rises to $2.50 and bottled water rises to $1.25. Why is averaging these two prices meaningless in terms of trying to figure out whether or not there is inflation in the economy?

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The Answer of Assume there are two goods in an economy: bread and bottled water. Assume bread sells for $2 per loaf and water sells for $1 per gallon the first year and in the second year the price of a loaf rises to $2.50 and bottled water rises to $1.25. Why is averaging these two prices meaningless in terms of trying to figure out whether or not there is inflation in the economy?

Assume There Are Two Goods in an Economy: Bread and Bottled