The price of a pencil is Rs 2 and that of a pen is Rs 10. If the prices of all commodities double, then:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → a rupee is worth 0.05 pen, and a pen is still worth 5 pencils
Given:
Price of a pencil = Rs 2
Price of a pen = Rs 10
All prices double
When all prices double, a rupee buys less of every good. But the price of one good in terms of another stays the same.
New price of a pencil = 2 × 2 = Rs 4
New price of a pen = 2 × 10 = Rs 20
Value of a rupee in pens = 1 ÷ 20 = 0.05 pen (it was 0.1 pen)
Price of a pen in pencils = 20 ÷ 4 = 5 pencils (unchanged)
So the purchasing power of money has fallen, while relative prices have not changed.
NCERT (2026-27): “3.1 Functions of Money … Money also acts as a convenient unit of account. The value of all goods and services can be expressed in monetary units. When we say that the value of a certain wristwatch is Rs 500 we mean that the wristwatch can be exchanged for 500 units of money, where a unit of money is rupee in this case. If the price of a pencil is Rs 2 and that of a pen is Rs 10 we can calculate the relative price of a pen with respect to a pencil, viz. a pen is worth 10 ÷ 2 = 5 pencils. The same notion can be used to calculate the value of money itself with respect to other commodities. In the above example, a rupee is worth 1 ÷ 2 = 0.5 pencil or 1 ÷ 10 = 0.1 pen. Thus if prices of all commodities increase in terms of money i.e., there is a general increase in the price level, the value of money in terms of any commodity must have decreased - in the sense that a unit of money can now purchase less of any commodity. We call it a deterioration in the purchasing power of money.” |