Relative Prices

Question 1

Relative Prices

Answer 1

The final price of a particular good or service compared to another

Question 2

Relative profits

Answer 2

The profits gained from producing one good in comparison to another

Question 3

Relative prices and “what and how much to produce”

Answer 3

As prices of g+s rise and fall, and relative price levels are altered, relative profits change
-This signals to firms where there is high demand and high profits to be made, therefore where to allocate their scare resources
-This determines how much firms produce of specific g+s

Question 4

Relative prices and “how to produce”

Answer 4

-Markets operate to determine price and costs of resources (e.g., labor market)
-These prices determine costs of production for firms, who will look to use the cheapest method of goods and services, whether that be labor, machinery etc..

Question 5

Relative prices and “for whom to produce”

Answer 5

-Firms are less concerned about who they are producing for, more about where there is high demand. Firms will therefore look to higher relative prices when allocating resources, and supply to whichever demographic can make them the most profit