Question

A market basket is made up of three goods, 10X, 15Y, and 20Z. The prices in the base year are $1, $2, and $3, respectively. The prices in the current year are $1.50, $2.50, and $3.50. What is the approximate consumer price index in the current year?

Answer 1

Ans: The approximate consumer price index in the current year is 122.5

Explanation:

The cost of the market basket ;

In the base year = ( $1.00 * 10 ) + ( $2.00 * 15 ) + ( $3.00 * 20) = $10 + $30 + $60 = $100

In the current year = ( $1.50 * 10 ) + ( $2.50 * 15 ) + ( $3.50 * 20) = $15 + $37.50 + $70 = $122.5

CPI = (Current year cost / Base year cost)*100

CPI in the base year = ( 100 / 100 ) * 100 = 1 * 100 = 100

CPI in the current year = ( 122.5 / 100 ) * 100 = 1.225 * 100 = 122.5