Causes of Relative Price Changes for a Single Good

Imagine an economy where a sudden, severe frost destroys a large portion of the coffee bean crop. Consequently, the price of coffee at cafes and grocery stores doubles. However, the prices for most other goods and services, such as housing, electronics, and transportation, remain unchanged. A media report claims, 'The doubling of coffee prices is clear evidence that the economy is suffering from high inflation.' Which of the following statements provides the most accurate economic assessment of this claim?

Analyzing Price Changes in Econland

Interpreting Price Changes

A significant and sustained increase in the price of a single, widely-used commodity, such as gasoline, is a definitive indicator of economy-wide inflation.

An economy produces only four goods. Over the last year, their prices changed as follows:

• Avocados: +40%
• Bread: +2%
• Laptops: +1%
• Clothing: +2%

Which of the following statements provides the most accurate analysis of this situation?