My dad was saying the following: suppose that over the last year, a certain product, let's say milk, has doubled in price, while another product, say bread, has dropped to half the price. Someone now claims that prices has gone up" and uses the following argument: if we put prices on 100 last year, then the price of milk now is 200, and the price of bread is down to 50. On average this means the price is 125, compared to 100 last year. However I am not entirely convinced this is right. Can somebody:
- Give an argument that shows (in the exact same circumstances) that the average price did not go up, but instead went actually down in the same period. (Is there a reason to set last year's prices to 100?)
- Is there a name for this phenomenon? How does it exactly work.