Asked by Raaghav Bhalla on Jun 30, 2024
Verified
William observes that a car in 1925 sold for an average of $500 versus $20,000 for a 2005 model. He concludes that 2005 cars must be 40 times better than 1925 cars. What's wrong with this way of thinking?
Way Of Thinking
A perspective or method of approaching problems and making decisions based on certain principles, values, or assumptions.
- Identify the effects of changes in income and prices on consumer behavior and market demand.
Verified Answer
ZK
Zybrea KnightJul 04, 2024
Final Answer :
Poor William has made several errors. First, a 1925 car differs substantially from a 2005 car. As the saying goes, he is comparing apples and oranges. Second, the value of the dollar has declined; William, therefore, is using as his measure a unit that has changed sizes. This is like measuring one room with a 50-inch stick and another room with a 20-inch stick. We can give both measures in terms of sticks, but they are not very comparable.
Learning Objectives
- Identify the effects of changes in income and prices on consumer behavior and market demand.
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