Question

(b) The citizens of this country are in general very clever people, but they are not good at multiplying by 2. This made shopping for potatoes excruciatingly difficult for many citizens. Therefore it was decided to introduce a new unit of currency, such that potatoes would be the numeraire. A sack of potatoes costs one unit of the new currency while the same relative prices apply as in the past. In terms of the new currency, what is the price of meatballs

Answer 1

Answer: 2 sacks of potatoes

Step-by-step explanation:

In the past, meatballs cost 4 crowns per crock which was twice the price of Potatoes at 2 crowns per sack.

Now that potatoes were are the new currency but relative prices apply, the same notion above applies too.

If meatballs are twice the price of potatoes and potatoes are now the currency, then meatballs which are still twice the price of potatoes must be:

= 2 * 1 sack of potatoes

= 2 sacks of potatoes