What is absolute value?

Absolute value refers to a business valuation method that uses discounted cash flow analysis to determine a company's financial worth. Investors can determine if a stock is currently under or overvalued by comparing what a company's share price should be given its absolute value to the stock's current price.

How do we measure absolute prices?

In general, we measure absolute prices in terms of dollars and relative prices in terms of units of some other good. However, many times we measure relative prices in terms of dollars also keeping in mind that the word dollar is being used to refer not to a piece of green paper but to a basket of goods.

Is a change in relative prices the same as changes in absolute prices?

The change in relative prices is not the same thing as changes in absolute prices. Sometimes, the absolute prices of goods may change but relative prices may remain constant. In general, we measure absolute prices in terms of dollars and relative prices in terms of units of some other good.

What is the relative price of good a in terms of B?

The relativeprice of good A in terms of B is the amount of good B necessary to purchase a unit of good A. The change in relative prices is not the same thing as changes in absolute prices. Sometimes, the absolute prices of goods may change but relative prices may remain constant.