There are two goods X and Y The absolute price of X rises an

There are two goods: X and Y. The absolute price of X rises and the absolute price of Y does not change. Prove that the relative price of X rises in terms of Y. 6.

Solution

Let the absolute price of x be 2 and that of y be 4 ,now let the price of y remains unchanged and that of x rises to 4, relative price means the price of one good with respect to the other, so in the first case relative price x/y =2/4 = 0.5

Now as it rises to 4,new relative price =4/4 =1

1>0.5

So, when absolute price of x rises keeping that of y constant, then the relative price also rises.