Question

The following table lists the prices of a small market basket purchased in both 2008 and 2018. Assuming that this basket of goods is representative of all goods and services, compute the price of the market basket in (a) 2008 and (b) 2018 and then answer two questions about price levels and real income.

		Price per Unit			a. Cost of Market Basket in 2008		b. Cost of Market Basket in 2018
Item	Quantity	2008	2018		(Quantity*2008 price)		(Quantity*2018 price)
Coffee	20 pounds	$4	$5		$7,780		$11,550
Tuition	1 year	4,000	7,000
Pizza	100 pizzas	8	10
Movie download	90 movies	10	5
Gasoline	1,000 gallons	2	3
				Total 2008		Total 2018
Instructions:	Round your response to two decimal places.
c. By how much has the average price level risen between 2008 and 2018?
Hint: Compare the total basket cost in 2018 to the total basket cost in 2008.
d. The average household’s nominal income increased from $40,000 to $60,000 between 2008 and 2018.
What happened to its real income?			Real income

Answer 1

ANSWER -1

COST OF MARKET BASKET IN 2008

COFFEE = 20* 4 = 80

TUTUION FEE = 1 *4000 = 4000

PIZZA'S = 100* 8 = 800

MOVIES = 90 * 10 = 900

GASOLINE = 1000 *2 = 2000

TOTAL = $7780

ANSWER - 2

COST OF MARKET BASKET IN 2018

COFFEE= 20* 5 = 100

TUTION FEE = 1* 7000 = 7000

PIZZA'S = 100* 10 = 1000

MOVIES = 90* 5 = 450

GASOLINE = 1000* 3 = 3000

TOTAL = $ 11550

ANSWER- 3

THE AERAGE INCREASE IN PRICES FROMO YEAR 2008 TO 2018

= [11550 - 7780 ]/ 7780

= $ 0.484 INCREASE HAS BEEN OBSERVED