Sam likes Pepsi (P) twice as much as he likes Coke (C). Assume the price of Pepsi is $3 and the price of Coke is $1 and that Sam’s income is $150. What is the relative price of Pepsi?

Question

BlackTom AI · Accepted Answer

To determine the relative price of Pepsi, we compare its price to the price of Coke, since relative price is defined as the price of one good in terms of the other.
First, note the given prices: Pepsi (P) costs $3 and Coke (C) costs $1.
Then compute the price ratio of Pepsi to Coke: relative price of Pepsi = Price(P) / Price(C) = 3 / 1 = 3.
This ratio means Pepsi is three times as expensive as Coke in this scenario.
It is important to recognize that Sam’s preferences (liking Pepsi twice as much as Coke) do not affect the relative price calculation; relative price is purely a price comparison, not a measure of utility or demand.
Therefore, the relative price of Pepsi, in this setup, is 3.

ECON3200001.1251 Homework Assignment 3

Sam likes Pepsi (P) twice as much as he likes Coke (C). Assume the price of Pepsi is $3 and the price of Coke is $1 and that Sam’s income is $150. What is the relative price of Pepsi?

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