Question

Problem 6 (30). The following table gives the CPI basket for 2000 and 2001. Suppose that 2000 is the reference base period:

Item	Quantity (2000)	Price (2000)	Price (2001)
Oranges	50	$0.90	$0.75
Bananas	100	$0.50	$0.95
Chicken	200	$2.00	$2.50
Beef	100	$5.00	$4.80
Bread	300	$1.75	$2.00

a. What is the cost of the CPI basket in 2000?

b. What is the cost of the CPI basket in 2001?

c. What is the CPI for 2000?

d. What is the CPI for 2001?

Answer 1

a. cost of CPI basket in 2000

oranges = 50 * 0.90 = 45
bananas = 100 * 0.50 = 50
Chicken = 200 * 2.00 = 400
Beef = 100 * 5.00 = 500
Bread = 300 * 1.75 = 525
---------
1520
----------

Total cost is $ 1520

b. Cost of CPI basket in 2001

oranges = 50 * 0.75 = 37.50
bananas = 100 * 0.95 = 95.00
Chicken = 200 * 2.50 = 500.00
Beef = 100 * 4.80 = 480.00
Bread = 300 * 2.00 = 600.00
---------
1712.50
----------

Total cost is $ 1712.50

c. CPI for 2000

Consumer Price Index = Cost of market basket t
--------------------------------- * 100
cost of market basket b

1520 * 100
--------
1520
= 100

d. CPI for 2001 = 1712.50 * 100
--------------
1520

= 112.66