In his Nobel Prize speech, Friedrich Hayek asserted that, “… I must confess that if I had been consulted whether to establish a Nobel Prize in economics, I should have decidedly advised against it. It is that the Nobel Prize confers on an individual an authority which in economics no man ought to possess.”
Consider country X as a fictional country. The economy of this country has all the characteristics of a normal economy: Markets trade goods, individuals take part in financial affairs and institutions regulate the process of business in different sectors. Two decades ago in this country people used to buy chocolate for 2$ apiece. These days, however, people pay $3.5 for a bar of chocolate. This increase in price makes people to either pay more for the same amount of quantity that they used to buy, or to buy fewer amounts with the same amount of money. To explain this,...