Question

24. Consider an economy with only two goods: yogurt and coconut water. In 2014, the typical family bought 4

cups of yogurt at 50¢ per cup and 2 bottles of coconut water for $9 per bottle. In Year 2017, the typical family

bought 12 cups of yogurt at 75¢ per cup and 3 bottles of coconut water for $10 per bottle. The CPI for 2017 is:

a. 100.

b. 115.

c. 126.

d. 130.

25. Suppose we shopped for a basket of goods in Year 1 and it cost $450. Suppose the same basket of goods

adds up to $485 in Year 2. If we use Year 1 as a base year, what would be the Year 2 CPI?

a. 35.

b. 93.

c. 100.

d. 107.

e. 135.

Answer 1

24. Given,

Item	2014		2017
	Quantity	Price	Quantity	Price
Yogurt	4	$ 0.50	12	$ 0.75
Coconut water	2	$ 9	3	$ 10

Using 2014 as base year.

Here the base year is not provided thus I am considering 2014 as the base year.

Cost of market basket (2017) = 4 × 0.75 + 2 × 10 = 3 + 20 = $ 23

Cost of market basket(2014) = 4 × 0.5 + 2 × 9 = 2 +18 = $ 20

CPI (2017) = (23/20) × 100 = 115 (Using 2014 as base year).

When we are using the 2017 as base year then CPI = 100

Note: I am not sure about the options as both are possible answers. Everything depends upon the base year. Please consider it, as no base year is provided so have answered it both ways. From my point of view first answer that is 115 seems correct.

25. Cost of basket year 1 = $ 450

Cost of basket year 2 = $ 485

CPI = 107 (Approximately).

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