Let's consider the effects of inflation in an economy composed of only two people: Bob, a bean farmer and Rita, price farmer. Bob and Rita both always consume equal amounts of rice and beans. In 2013, the price of beans was $1 and the price of rice is $3.

1. Suppose that in 2014 the price of beans was $2 and the price of rice was $6. What was the inflation? Was Bob better off, worse off, or unaffected by the changes in prices? What about Rita?
2. Now suppose that in 2014 the price of beans was $2 and the price of rice was $4. What was inflation? Was Bob better off, worse off, or unaffected by the changes in prices? What about Rita?
3. Finally, supposed that in 2014 the price of beans was $2 and the price of rice was $1.50. What was inflation? Was Bob better off, worse off, or unaffected by the changes in prices? What about Rita?
4. What matters more to Bob and Rita -- the overall inflation rate or the relative price if the rice and the beans?