Saturday, December 20, 2008

Relative Prices of Food


Here's an argument I'd like to make. I'll argue that food is almost always relatively cheap. Say that there's only two goods that a country consumes--bread and cars. The price of bread is $1 a loaf and the price of a car is $20,000. If consumers buy a car, then they give up 20K loaves of bread. If consumers buy a loaf of bread, the relative cost is 1/20,000 of a car. Thus, food is relatively cheap. Food should always be cheaper even if the price of food increases. Consumers should be indifferent to the price of food.

1 comment:

  1. Anonymous10:56 AM

    You dont have to buy a car every day to stay alive, though, do you?

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