Answer to Question 1
A relative price is the price of one good divided by the price of another good. For example, the magnitude of the slope of the budget line (Pmovie/Psoda) is the relative price of a movie in terms of soda. This relative price shows how many sodas must be forgone to see an additional movie. A fall in the price of the good on the horizontal (vertical) axis increases the total affordable quantity of that good, decreases its relative price, and decreases (increases) the magnitude of the slope of the budget line.
Answer to Question 2
Rapid economic progress brought some developing nations closer to developed economies. Countries such as Argentina and Chile, still considered to be developing, are often referred to as middle-income or newly
industrialized countries. Other countries, such as those in much of sub-Saharan Africa and some in South Asia, have stagnated and fallen so far behind the economic advances of the rest of the world that the term Fourth World has been used to describe them. China and India, while usually labeled developing countries, are fast becoming economic superpowers.
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