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 2010, 2011, and 2012. The cost of each item in the basket and the total cost of the basket are shown for 2010. Perform these same calculations for 2011 and 2012, and enter the results in the following table. Quantity in Basket 2010 2011 2012 Price Cost Price Cost Price Cost (Dollars) (Dollars) (Dollars) (Dollars) (Dollars) (Dollars) Notebooks 15 2 30 5 8 Calculators 1 70 70 100 130 Large coffees 250 2 500 2 2 Energy drinks 50 2 100 4 6 Textbooks 10 120 1,200 150 180 Total cost 5 5 1,900 5 5 Price index 5 5 100 5 5 Suppose the base year for this price index is 2010. In the last row of the table, calculate and enter the value of the CSPI for the remaining years. Between 2010 and 2011, the CSPI increased by . Between 2011 and 2012, 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. Professors required each student to buy 10 textbooks, regardless of the price. Energy drinks became increasingly popular on college campuses between 2010 and 2012 due to significant improvements in flavor. A new mobile device for personal computing became available for purchase. As the price of calculators rose, fewer students decided to buy them, opting instead to use the free calculators in their cell phones or on their computers.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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 2010, 2011, and 2012.

The cost of each item in the basket and the total cost of the basket are shown for 2010.

Perform these same calculations for 2011 and 2012, and enter the results in the following table.

	Quantity in Basket	2010	2011	2012
Price	Cost	Price	Cost	Price	Cost
(Dollars)	(Dollars)	(Dollars)	(Dollars)	(Dollars)	(Dollars)
Notebooks	15	2	30	5		8
Calculators	1	70	70	100		130
Large coffees	250	2	500	2		2
Energy drinks	50	2	100	4		6
Textbooks	10	120	1,200	150		180
Total cost	5	5	1,900	5		5
Price index	5	5	100	5		5

Suppose the base year for this price index is 2010.

In the last row of the table, calculate and enter the value of the CSPI for the remaining years.

Between 2010 and 2011, the CSPI increased by

. Between 2011 and 2012, 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.

Professors required each student to buy 10 textbooks, regardless of the price.

Energy drinks became increasingly popular on college campuses between 2010 and 2012 due to significant improvements in flavor.

A new mobile device for personal computing became available for purchase.

As the price of calculators rose, fewer students decided to buy them, opting instead to use the free calculators in their cell phones or on their computers.

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