Microeconomic Theory
12th Edition
ISBN: 9781337517942
Author: NICHOLSON
Publisher: Cengage
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Transcribed Image Text:Perform these same calculations for 2021 and 2022, and enter the results in the following table.
Streaming services
Iced coffees
Textbooks
Notebooks
Energy drinks
Total cost
Price index
Price
Quantity in Basket (Dollars)
1
64
150
2
10
80
8
2
40
3
Suppose this price index uses 2020 as the base year.
2020
Between 2020 and 2021, the UPI increased by
Cost
(Dollars)
64
300
800
16
120
1,300
100
Price
(Dollars)
104
2
85
2
4
2021
Cost
(Dollars)
In the last row of the table, calculate and enter the value of the UPI for the remaining years.
% Between 2021 and 2022, the UPI increased by
Price
Cost
(Dollars) (Dollars)
134
2
105
4
5
2022
%
Which of the following, if true, would illustrate why price indexes such as the UPI 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.
A new, cheaper internet option rolled out services nationwide.
As the price of premium streaming services rose, fewer students decided to buy them, opting instead to borrow log-in information from
friends and relatives.
Energy drinks became increasingly popular on college campuses between 2020 and 2022 due to significant improvements in flavor, but
this quality change is hard to measure.
Transcribed Image Text:Consider an imaginary price index, the Undergraduate Price Index (UPI), created to represent the annual purchases made by a typical undergradute.
The following table contains information on the market basket for the UPI and the price of each good in 2020, 2021, and 2022.
The cost of each good in the basket as well as the basket's total cost are given for 2020.
Perform these same calculations for 2021 and 2022, and enter the results in the following table.
Streaming services
Iced coffees
Textbooks
Notebooks
Energy drinks
Total cost
Price index
Quantity in Basket
1
150
10
8
40
Suppose this price index uses 2020 as the base year.
Price
(Dollars)
64
Between 2020 and 2021, the UPI increased by
2020
2
80
2
3
Cost
(Dollars)
64
300
800
16
120
1,300
100
Price
(Dollars)
104
2
85
2
4
2021
Cost
(Dollars)
In the last row of the table, calculate and enter the value of the UPI for the remaining years.
% Between 2021 and 2022, the UPI increased by
Price
(Dollars)
134
2
105
4
5
%
2022
Cost
(Dollars)
Expert Solution
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Step 1
A price index measures the change in price of basket of goods relative to the base year.
i.e., Price index = (Cost of basket of goods at current year price / Cost of basket of goods at base year price)*100
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The percentage change in price index measures the inflation rate.
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Undergraduate Price Index (UPI) is an imaginary price index which represents the annual purchase made by a typical undergraduate.
---------------
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