Question

Suppose over the last year that the price of recycled aluminum increased from $800 a ton to $900 a ton. Over the same time a measure of the overall price level increased from 120 to138. The real price of recycled aluminuma. decreased, so it became less scarceb. increased, so it became scarcerc. increased, so it became less scarced. decreased, so it became scarcer

Answer 1

Answer:

The real price of recycled aluminuma. decreased, so it became less scarce

Explanation:

The price increase has been in the ratio

900 / 800 . But this increase also includes the effect of inflation . So if we exclude the effect of inflation , this ratio will reduce to

(900/800)  x (120 / 138)

= .978

So in real terms , there has been a decrease in the price level ,.

In percentage terms this decrease i -.978 = 2.2% . The real price of recycled aluminuma. decreased, so it became less scarce