Notes:
When relative prices change you will change your consumption pattern.
Suppose, for example, that you are dining in Madrid, Spain. The price of a bottle of wine is $3.00 and a bottle of Coke Cola sells for $3.00. If you were dining out in Ames, Iowa you find that a bottle of wine is $6.00 and a bottle of Coke Cola is $1.00. The price of wine relative to Coke Cola is higher in Ames than in Madrid. The price ratio of wine to Coke Cola is 6 in Ames and 1 in Madrid.Would you order wine of Coke Cola in Madrid?What would you order in Ames?Whatever your answer to these questions. You can be sure that folks in Spain will consume more wine per capita and less Coke Cola than folks in Iowa. It might not be true for an individual, but it will be true for the market.