Foundations of Economics (8th Edition)
8th Edition
ISBN: 9780134486819
Author: Robin Bade, Michael Parkin
Publisher: PEARSON
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Chapter 23, Problem 3SPPA
To determine
To calculate:
The cost of S's
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The table shows the quantities of the goods Suzie bought and the prices she paid during
two consecutive weeks.
Suzie's CPI market basket contains the goods she bought in Week 1.
Calculate the cost of Suzie's CPI market basket in Week 1 and in Week 2.
What percentage of the CPI market basket is gasoline?
Calculate the value of Suzie's CPI in Week 2 and her inflation rate in week 2.
The cost of Suzie's CPI market basket in Week 1 is $
>>> Answer to 2 decimal places.
m
Week 1
Item
Coffee
Books
Gasoline
Week 2
Item
Coffee
Books
Gasoline
Concert
Quantity
8 cups
1
25 gallons
Quantity
8 cups
4
15 gallons
1 ticket
Price
$4.00 a cup
$25.00 each
$2.00 a gallon
Price
$4.00 a cup
$12.50 each
$2.50 a gallon
$95 each
Insurance and
pensions 11.9%
Item
a. Entertainment
b. Transportation
c. Clothing
Housing
32.8%
Entertainment 5.3%
Source: U.S. Bureau of Labor Statistics, Consumer Expenditure Survey (2018 data).
0.053
0.159
0.03
Transportation
15.9%
Health care 8.1%
Use the item weights in the figure to determine the percentage change in the CPI that would result from a(n)
a. 20 percent increase in entertainment prices.
b. 8 percent decrease in transportation costs.
c. doubling of clothing prices.
(Note: Review the table titled "Computing Changes in the CPI" in your text for assistance.)
Instructions: Enter your responses as a percentage rounded to two decimal places. If you are entering any negative numbers be sure
to include a negative sign (-) in front of those numbers.
Item Weight Price Change (Inflation Effect)
Impact on CPI
20%
-8%
100%
Food
12.9%
Clothing 3.0%
Miscellaneous 10.1%
The table shows the quantities of the goods Suzie bought and the prices she paid during two consecutive
weeks.
Week 1
Suzie's CPI market basket contains the goods she bought in Week 1.
Item
Quantity
14 cups
Price
Coffee
$2.50 a cup
Calculate the cost of Suzie's CPI market basket in Week 1 and in Week 2.
Books
1
$30.00 each
Gasoline
30 gallons
$1.75 a gallon
Week 2
What percentage of the CPI market basket is gasoline?
Item
Quantity
Price
$2.50 a cup
Calculate the value of Suzie's CPI in Week 2 and her inflation rate in week 2.
Coffee
14 cups
Books
4
$15.00 each
$2.25 a gallon
Gasoline
20 gallons
Concert
1 tícket
$95 each
The cost of Suzie's CPI market basket in Week 1 is $.
>>> Answer to 2 decimal places.
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Chapter 23 Solutions
Foundations of Economics (8th Edition)
Ch. 23 - Prob. 1SPPACh. 23 - Prob. 2SPPACh. 23 - Prob. 3SPPACh. 23 - Prob. 4SPPACh. 23 - Prob. 5SPPACh. 23 - Prob. 6SPPACh. 23 - Prob. 7SPPACh. 23 - Prob. 8SPPACh. 23 - Prob. 9SPPACh. 23 - Prob. 10SPPA
Ch. 23 - Prob. 1IAPACh. 23 - Prob. 2IAPACh. 23 - Prob. 3IAPACh. 23 - Prob. 4IAPACh. 23 - Prob. 5IAPACh. 23 - Prob. 6IAPACh. 23 - Prob. 7IAPACh. 23 - Prob. 8IAPACh. 23 - Prob. 9IAPACh. 23 - Prob. 10IAPACh. 23 - Prob. 1MCQCh. 23 - Prob. 2MCQCh. 23 - Prob. 3MCQCh. 23 - Prob. 4MCQCh. 23 - Prob. 5MCQCh. 23 - Prob. 6MCQCh. 23 - Prob. 7MCQCh. 23 - Prob. 8MCQ
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- Covid 19 pandemic has forced the people in the economy Love & Laughter, to consume only 2 goods, food, and clothing. The CPI is derived from the market basket of goods which consists of 25 units of food and 5 units of clothing. FOOD Clothing 2018 price per unit $8 $20 2019 price per unit $12 $40 1. What are the percentage increases in the price of food and in the price of clothing? 2. What is the percentage increase in the CPI? 3. Do these price changes affect all consumers to the same extent? Explain.arrow_forwardThe table below gives the CPI and the price of gasoline per gallon in the fictitious country "Alpha" between 2010 and 2015. For each year find the percent change in the price of gasoline from the previous year's price, the CPI inflation rate, and the change in the relative price of gasoline. Instructions: Enter your responses rounded to one decimal place. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers. Year Gasoline price ($/gallon) Percent change in gasoline price CPI Inflation Change in relative price of gasoline 2010 $0.80 — 1.60 — — 2011 $1.00 % 1.80 % % 2012 $1.25 % 2.00 % % 2013 $1.65 % 2.04 % % 2014 $1.70 % 2.21 % % 2015 $1.87 % 2.25 % %arrow_forwardQuestion 17 One problem with the CPI is the "substitution bias," which refers to consumers buying more of a good that has become cheaper and less of a good that has become more expensive. Assume that consumers consider Pepsi and Coke to be substitutes, so that when the price of Coke increases, consumers purchase less Coke and more Pepsi. When the CPI is calculated following the increase in the price of Coke, the substitution bias causes the CPI to O understate inflation since both the increase in the price of Coke and the increase in the amount of Pepsi purchased enter the CPI calculation O understate inflation since only the decrease in the price of Pepsi enters the CPI calculation O overstate inflation since both the increase in the price of Coke and the decrease in amount of Coke purchased enter the CPI calculation overstate inflation since only the increase in the price of Coke enters the CPI calculationarrow_forward
- Refer to the figure below. Insurance and pensions 11.9% Item a. Entertainment b. Transportation c. Clothing Housing 32.8% Source: U.S. Bureau of Labor Statistics, Consumer Expenditure Survey (2018 date). Entertainment 5,3% Item Weight 0.053 0.159 0.03 Transportation 15.9% Health care 8.1% Use the item weights in the figure to determine the percentage change in the CPI that would result from a(n) a. 20 percent increase in entertainment prices. b. 8 percent decrease in transportation costs. c. doubling of clothing prices. (Note: Review the table titled "Computing Changes in the CPI" in your text for assistance.) Instructions: Enter your responses as a percentage rounded to two decimal places. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers. Price Change 20% -8% 100% Food 12.9% Clothing 3.0% Impact on CPI (Inflation Effect) Miscellaneous 10.1%arrow_forwardOver a long period of time, the price of a candybar rose from $0.20 to $1.20. Over the same period,the CPI rose from 150 to 300. Adjusted for overallinflation, how much did the price of the candy barchange?arrow_forwardK The monthly market basket for consumers consists of pizza, 1-shirts, and rent. The table below shows market basket quantities and prices for the base year (Year 1) and in the following two years. The inflation rate between Year 1 and Year 2 is The inflation rate between Year 2 and Year 3 is Base Year (Year 1) Quantity 15 3 1 Price in the Base Year Product Pizza T-Shirts Rent (Round both answers to one decimal place). $3.50 $20.00 $450.00 Price in Year 2 $4.38 $18.00 $495.00 Price in Year 3 $4.55 $17.00 $585.00arrow_forward
- The "pizza connection" refers to the observation that in a major city, the cost of a slice of pizza is always about the same as the subway fare. Using the CPI values from the table shown below and the CPI table, determine what a slice of pizza should have cost in 2009 if it cost $1.00 in 1984 and prices had risen with the CPI. What does this tell you about how actual pizza prices changed compared to the CPI? 1984 1993 1997 2002 Year Pizza Cost 2008 2011 2015 2.50 2.75 2.80 1.00 1.25 1.50 2.00 1.00 1.15 2.00 2.60 2.85 3.05 Subway fare CPI 1.40 144.5 160.5 179.9 215.3 224.9 103.9 237.0 Click to view the CPI Table. A slice of pizza should have cost $ in 2009 if it cost $1.00 in 1984 and prices had risen with the CPI. (Round to the nearest cent as needed.) Data table C Year 1976 56.9 1977 60.6 1978 65.2 1979 72.6 1980 82.4 1981 90.9 1982 96.5 1983 99.6 1984 103.9 1985 107.6 Average Annual Consumer Price Index (1982-1984=100) CPI CPI Year CPI 1996 156.9 Year 1986 109.6 1987 113.6 1988 118.3…arrow_forwardQUESTION FIVE Question Suppose that the representative consumer in Country ABC buys 4 units of each consumer good and the prices of each good are: Consumer Good 2019 2020 2021 $4 $5 $5 7 7.5 8 358 X Y Z a) What is the cost of a typical basket of consumer goods for 2019, 2020, and 2021? b) Convert the cost of each bundle into a CPI using 2019 as the base year. c) What is the inflation rate for 2020 and 2021?arrow_forwardThe monthly market basket for consumers consists of pizza, t-shirts, and rent. The table below shows market basket quantities and prices for the base year (Year 1) and in the following two years. The inflation rate between Year 1 and Year 2 is The inflation rate between Year 2 and Year 3 is Product Pizza T-Shirts Rent Base Year (Year 1) Quantity 15 3 1 Price in the Base Year % (Round both answers to one decimal place.) %. $2.50 $15.00 $450.00 Price in Year 2 $3.13 $13.50 $495.00 Price in Year 3 $3.75 $15.00 $585.00arrow_forward
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