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Adam Smith made distinctions between nominal prices, real prices, market prices, and natural (or normal) prices....

Adam Smith made distinctions between nominal prices, real prices, market prices, and natural (or normal) prices. Explain what these different prices mean. Elaborate.

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Answer #1

1.) nominal prices refer to the prices that have not been adjusted for inflation.

2.) real prices refer to prices that have been adjusted as per the changes in the market prices of the commodities i.e. inflation or deflation.

3.) market prices refer to the prices at which currently goods are being sold in the market. The value at which goods are available for sale in the market.

4.) natural prices refer to prices that are determined by the market forces of demand and supply interaction. The condition where the producer earns normal profits equal to total cost.

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