Suppose the base year for this price index is 2019. In the last row of the table, calculate and enter the value of the CSPI for the remaining years. Between 2019 and 2020, the CSPI increased by %. Between 2020 and 2021, the CSPI increased by % Which of the following, if true, would illustrate why price indexes such as the CSPI might overstate inflation in the cost of going to college? Check all that apply. A new type of personal transporter, which made it easier to get around places like university campuses, became available for purchase. As the price of energy drinks increased relative to the price of coffee between 2019 and 2021, students decreased their consumption of energy drinks and increased their consumption of coffee. Professors required each student to buy 10 notebooks, regardless of the price.

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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**Price Index Exercise**

**Instructions:**
Suppose the base year for this price index is 2019.

**Task:**
In the last row of the table, calculate and enter the value of the College Student Price Index (CSPI) for the remaining years.

**Questions:**
1. Between 2019 and 2020, the CSPI increased by _____%. 
2. Between 2020 and 2021, the CSPI increased by _____%.

**Multiple Choice Question:**
Which of the following, if true, would illustrate why price indexes such as the CSPI might **overstate** inflation in the cost of going to college? Check all that apply.

- [ ] A new type of personal transporter, which made it easier to get around places like university campuses, became available for purchase.
- [ ] As the price of energy drinks increased relative to the price of coffee between 2019 and 2021, students decreased their consumption of energy drinks and increased their consumption of coffee.
- [ ] Professors required each student to buy 10 notebooks, regardless of the price.
- [ ] The quality of textbooks increased dramatically from 2019 to 2021, with textbook companies bundling new online study aids with their books.
Transcribed Image Text:**Price Index Exercise** **Instructions:** Suppose the base year for this price index is 2019. **Task:** In the last row of the table, calculate and enter the value of the College Student Price Index (CSPI) for the remaining years. **Questions:** 1. Between 2019 and 2020, the CSPI increased by _____%. 2. Between 2020 and 2021, the CSPI increased by _____%. **Multiple Choice Question:** Which of the following, if true, would illustrate why price indexes such as the CSPI might **overstate** inflation in the cost of going to college? Check all that apply. - [ ] A new type of personal transporter, which made it easier to get around places like university campuses, became available for purchase. - [ ] As the price of energy drinks increased relative to the price of coffee between 2019 and 2021, students decreased their consumption of energy drinks and increased their consumption of coffee. - [ ] Professors required each student to buy 10 notebooks, regardless of the price. - [ ] The quality of textbooks increased dramatically from 2019 to 2021, with textbook companies bundling new online study aids with their books.
**1. Calculating inflation using a simple price index**

Consider a fictional price index, the College Student Price Index (CSPI), based on a typical college student's annual purchases. Suppose the following table shows information on the market basket for the CSPI and the prices of each of the goods in 2019, 2020, and 2021.

The cost of each item in the basket and the total cost of the basket are shown for 2019.

**Perform these same calculations for 2020 and 2021, and enter the results in the following table.**

| Quantity in Basket |     | **2019** |       | **2020** |       | **2021** |       |
|--------------------|-----|----------|-------|----------|-------|----------|-------|
|                    |     | Price    | Cost  | Price    | Cost  | Price    | Cost  |
|                    |     | (Dollars)| (Dollars)| (Dollars)| (Dollars)| (Dollars)| (Dollars)|
| Notebooks          | 10  | 2        | 20    | 1        |       | 3        |       |
| Calculators        | 1   | 50       | 50    | 54       |       | 75       |       |
| Large coffees      | 200 | 1        | 200   | 1        |       | 1        |       |
| Energy drinks      | 100 | 2        | 200   | 3        |       | 4        |       |
| Textbooks          | 10  | 100      | 1,000 | 120      |       | 150      |       |
| Total cost         |     |          | 1,470 |          |       |          |       |
| Price index        |     |          | 100   |          |       |          |       |

To fill out the table for 2020 and 2021, calculate the total cost of each item by multiplying the quantity by the price, then sum all the costs for each year to get the total cost for 2020 and 2021. Calculate the price index for these years by comparing them to 2019.
Transcribed Image Text:**1. Calculating inflation using a simple price index** Consider a fictional price index, the College Student Price Index (CSPI), based on a typical college student's annual purchases. Suppose the following table shows information on the market basket for the CSPI and the prices of each of the goods in 2019, 2020, and 2021. The cost of each item in the basket and the total cost of the basket are shown for 2019. **Perform these same calculations for 2020 and 2021, and enter the results in the following table.** | Quantity in Basket | | **2019** | | **2020** | | **2021** | | |--------------------|-----|----------|-------|----------|-------|----------|-------| | | | Price | Cost | Price | Cost | Price | Cost | | | | (Dollars)| (Dollars)| (Dollars)| (Dollars)| (Dollars)| (Dollars)| | Notebooks | 10 | 2 | 20 | 1 | | 3 | | | Calculators | 1 | 50 | 50 | 54 | | 75 | | | Large coffees | 200 | 1 | 200 | 1 | | 1 | | | Energy drinks | 100 | 2 | 200 | 3 | | 4 | | | Textbooks | 10 | 100 | 1,000 | 120 | | 150 | | | Total cost | | | 1,470 | | | | | | Price index | | | 100 | | | | | To fill out the table for 2020 and 2021, calculate the total cost of each item by multiplying the quantity by the price, then sum all the costs for each year to get the total cost for 2020 and 2021. Calculate the price index for these years by comparing them to 2019.
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