Question

The 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 year.

Product	Base Year​ (Year 1) Quantity	Price in the Base Year	Price in Year 2
Pizza	10	​$3.00	​$3.75
​T-Shirts	4	​$10.00	​$9.00
Rent	1	​$450.00	​$495.00

In Year​ 1, the CPI for the economy is _____?

​(Round

both answers to one decimal

place.​)

In Year​ 2, the CPI for this economy is ______?

Answer 1

Ans:

Cost of market basket in the base year = (10 * $3) + (4 * $10) + (1 * $450)

= $30 + $40 + $450

= $520

Cost of market basket in year-1 = (10 * $3) + (4 * $10) + (1 * $450)

= $30 + $40 + $450

= $520

Cost of market basket in year-2 = (10 * $3.75) + (4 * $9) + (1 * $495)

= $37.5 + $36 + $495

= $568.5

1) Consumer price index(CPI) in year-1 = ( Cost of market basket in year-1 / Cost of market basket in base year ) * 100

=( $520 / $520 ) * 100

= 100

2) Consumer price index(CPI) in year-2 = ( Cost of market basket in year-2 / Cost of market basket in base year ) * 100

=( $568.5 / $520 ) * 100

= 109.3