Final answer:
The statement is true; if the relative price of water in terms of milk has increased, meaning more milk is needed to buy the same amount of water, this implies the relative price of milk has fallen.
Step-by-step explanation:
If the relative price of a gallon of water in terms of milk increases from 1 gallon to 1.5 gallons of milk, then the relative price of milk has indeed fallen. This is because the amount of milk required to purchase a single gallon of water has increased, which implies that milk has become cheaper relative to water. In other words, milk can now buy less water than before, indicating that the value of milk in this trade has decreased.
Let's consider this with a brief example: Initially, 1 gallon of milk could be traded for 1 gallon of water. After the change, 1 gallon of milk can only be traded for 2/3 (or approximately 0.67) of a gallon of water. By requiring more milk to obtain the same quantity of water, the value or purchasing power of milk has decreased in relation to water. Therefore, the statement is True.