Answer:
1) Suppose that in 2017 the price of beans was $2 and the price of rice was $8.
- a) inflation rate = 100%
- b) both are unaffected
old price of beans = $1, new price $2, inflation rate 100%
old price of rice = $4, new price $8, inflation rate 100%
The inflation rate measures the change in the general price level of an economy during a certain period of time, in this case during a year from 2016 to 2017.
Since Gilberto produces beans and Juanita produces rice, and the price of both of their products increase equally (100%), then the inflation rate will not affect them. Their consumption levels also remain the same, no one decided to consume more of one product and less of the other.
2) Now suppose that in 2017 the price of beans was $2 and the price of rice was $4.80.
- a) 60%
- b) Charles is better off while Dina is worse off
old price of beans = $1, new price $2, inflation rate 100%
old price of rice = $4, new price $4.80, inflation rate 20%
average inflation rate = 60%
Since Charles produces beans, and the price of his products increased a lot, he will be better off, while Dina will be worse off since the price of rice increased much less.
3. Now suppose that in 2017, the price of beans was $2 and the price of rice was $1.60.
- a) 20%
- b) Charles will be better off, Dina will be worse off
old price of beans = $1, new price $2, inflation rate 100%
old price of rice = $4, new price $1.60, inflation rate -60%
average inflation rate = 20%
4) What matters more to Charles and Dina?
- The relative price of rice and beans is more important to Charles and Dina.
