Question

In April 2014 , the money price of a carton of milk was \(\$ 2.01\) and the money price of a gallon of gasoline was \(\$ 3.63 .\) Calculate the relative price of a gallon of gasoline in terms of milk.

Short answer

1.81 cartons of milk per gallon of gasoline.

Step-by-step solution

Identify the given prices

The problem provides the prices of two items. The price of a carton of milk is \(\$2.01 \) and the price of a gallon of gasoline is \(\$3.63\).

Understand relative price

The relative price is the price of one good in terms of another. In this case, it means how many cartons of milk are equivalent to one gallon of gasoline.

Set up the ratio

To find the relative price, divide the price of gasoline by the price of milk. This gives the number of cartons of milk that can be bought for the price of one gallon of gasoline. The formula is: \[ \text{Relative Price} = \frac{\text{Price of Gasoline}}{\text{Price of Milk}} \]

Calculate the relative price

Using the given prices, \[ \text{Relative Price} = \frac{3.63}{2.01} \] Calculate this value using a calculator: \[ \text{Relative Price} \approx 1.81 \]

Interpret the result

This result means that one gallon of gasoline costs about 1.81 cartons of milk.

Key concepts

price comparison

Price comparison helps us understand the value relationship between different products. In this exercise, by comparing the prices of milk and gasoline, you can better grasp how much one product is worth relative to another. This is particularly handy when you're trying to budget or make economic decisions. For example, knowing that gasoline is 1.81 times more expensive than milk can influence purchasing choices or help you comprehend shifts in the market. Always keep in mind the context of the products and their utility in your daily life. Comparing prices becomes especially important in economic studies where comparing different goods can give insights into consumer behavior and inflation impacts.

ratio analysis

Ratio analysis is a crucial tool for understanding relative prices. In this exercise, we use the ratio to compare how many units of one good (milk) equal the price of another good (gasoline). This is done by dividing the price of gasoline by the price of milk, yielding a ratio of 1.81. This ratio tells us that one gallon of gasoline is worth 1.81 cartons of milk. When conducting ratio analysis, ensure accuracy in your calculations as incorrect ratios can lead to misleading conclusions. Ratios are extensively used in finance and economics to measure relationships and make comparisons.

economic indicators

Economic indicators are statistics that provide information about the economic performance and conditions of a country. Although the given exercise is a simple price comparison, it can be expanded to understand broader economic indicators. For instance, regular monitoring of fuel and food prices can highlight inflation trends. If the price ratio between gasoline and milk drastically changes over time, it might indicate shifts in supply-demand dynamics or other economic factors like policy changes. Always consider multiple indicators together, such as unemployment rates or GDP growth, to have a comprehensive economic analysis.

cost comparison

Cost comparison involves evaluating the cost-effectiveness of different products. In the context of our exercise, it's about understanding the financial cost of gasoline in terms of milk. This helps in making informed decisions, whether you are budgeting for a household or managing a business. If the cost of gasoline increases significantly compared to milk, it might direct you to explore alternative energy sources or adjust consumption habits. Effective cost comparison requires up-to-date and accurate data to help consumers and policymakers make well-informed decisions. Always remember that cost comparison isn’t just about prices, but also about the perceived value and necessity of the goods being compared.