Q. Good Quantity Price Coffee 3 lb $8/lb Bread 3 loaves $1/loaf Te

Q.

Good Quantity Price

Coffee 3 lb $8/lb

Bread 3 loaves $1/loaf

Tea 1 lb $15/lb

Aspirin 1 200-tablet bottle $2/bottle

Cola 1 case $6/case

A. Why is the effect of a 100% increase in the price of coffee so much greater

than the effect of a similar change in the price of bread?

B. Assume that the mix of goods in a basket is kept constant for long periods. If

the price of one good rises very rapidly over several years what will happen to

the relative importance of the other goods in the basket? Is this a problem?

C. If the price of coffee increases we get a positive rate of inflation even if no

other price rises. Is this really inflation? Explain.