5. Taxes and the impact on relative price In her school's food court, Susan notices that a carton of juice costs $1.75 and a can of soda costs $1.25. Since Susan just finished studying for an economics exam, she immediately calculates that the relative price of a carton of juice is per . Suppose that school administrators want to encourage healthy choices and decide to impose a $0.25 price increase on cans of soda. Given that the absolute price of a carton of juice is unchanged, the relative price of a carton of juice .

1.4

Decreases

Explanation:

The question is incomplete. Here is the complete question:

In her school's food court, Jamie notices that a carton of juice costs $1.75 and a can of soda costs $1.25. Since Jamie just finished studying for an economics exam, she immediately calculates that the relative price of a carton of juice is a) 2/1.5/1.4/1.3 Suppose that school administrators want to encourage healthy choices and decide to impose a $0.25 price increase on cans of soda. Given that the absolute price of a carton of juice is unchanged, the relative price of a carton of juice d) increases/decreases

Relative price is the price of a good in terms or another good.

The relative price of carton of juice before the price increase = price of carton of juice / price of can of beer = $1.75 / $.125 = 1.4

The new price of a can of beer after the school adminsitrators increase its price = $1.25 + $0.25 = $1.50

The relative price = $1.75 / $1.50 = 1.167

We can see that the relative price decreased after the increase in the price of a can of beer.

I hope my answer helps you

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