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What is the difference between a change in relative price and a change in general price?...

What is the difference between a change in relative price and a change in general price? Give an example of each to make you point.

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Answer #1

General price

Relative Price

Nominal Value of goods & services in monetary terms

Price of a good w.r.t. another product at in the same time period.

Eg : A chocolate costs Rs 10 in Country X.

It means we need Rs 10 to buy a chocolate.

Eg : 1 chocolate = 10 toffee worth of good

In order to purchase 1 chocolate, 1 will at least need 10 toffees.

Change in general prices changes with a price change of good.

Eg : General price of chocolate increases by increasing price from Rs 10 to Rs 15.

It changes when the price of the other good / relative importance of our good varies.

Eg : When we need 15 toffees instead of 10 toffees to buy 1 chocolate, we state either price of toffee reduced or the importance of chocolate rose.
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