Relative price is the price of something compared to something else. In other words, it is the ratio of two prices. Completely logical people will make purchasing decisions by considering the relative prices of their options. The following are illustrative examples.
ProductsIn apple season, apples cost half as much as oranges. In orange season, oranges cost half as much as apples.
ServicesA local carpenter with high ratings and stellar recommendations costs 35% more than a carpenter with mediocre ratings that includes a few complaints.
EntertainmentA night out at the movies costs 1/4 the price of a night at the opera.
InvestingA stock with a price-to-book ratio of 2 might look cheap in a market where the average price-to-book is 3. However, if the average price-to-book drops to 0.66 a price-to-book of 2 may start to look expensive.
|Definition (1)||The price of something compared to something else.|
|Definition (2)||The price of something compared to all available alternatives and substitutions.|
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