Do Hobbits gain or lose if the price of a sword goes up to $150? (To answer the question, calculate their real wages before and after the price change).
To determine whether Hobbits gain or lose if the price of a sword goes up to $150, we need to calculate their real wages before and after the price change.
Here's how we can do that:
1. Determine the original price of the sword and the Hobbits' wages: Let's assume the original price of the sword was $100, and the Hobbits' wages were $500.
2. Calculate the initial number of swords Hobbits could afford: To determine how many swords the Hobbits could initially afford, we divide their wages by the original price of the sword. In this case, $500 divided by $100 equals 5 swords.
3. Calculate the real wage before the price change: Now, we calculate the real wage before the price change by dividing the Hobbits' wages by the number of swords they could afford. In this case, $500 divided by 5 swords equals $100.
4. Calculate the real wage after the price change: With the new price of the sword at $150, we divide the Hobbits' wages by the new price to determine the number of swords they can afford. In this case, $500 divided by $150 equals approximately 3.33 swords (rounded to two decimal places).
5. Calculate the real wage after the price change: Finally, we calculate the new real wage after the price change by dividing the Hobbits' wages by the number of swords they can afford. In this case, $500 divided by 3.33 swords equals approximately $150.15 (rounded to two decimal places).
Now let's compare the initial real wage of $100 with the new real wage of $150.15:
- If the new real wage is higher than the initial real wage ($150.15 > $100), it means the Hobbits have gained purchasing power. They can now afford more swords with their wages, indicating a gain.
Therefore, if the price of the sword goes up to $150, the Hobbits gain purchasing power as their real wage increases.