Question

Question 1:

The table provides a hypothetical bundle of goods and their respective prices for the three different years. If 2010 is selected as the base year, what is the CPI in 2014?

Product	Q 2010	Q 2014	Q 2017	P 2010	P 2014	P 2017
Apples	10	11	12	$3.00	$4.00	$4.25
Coffee beans	50	50	55	$8.00	$9.00	$10.00
Cereal	20	25	29	$3.50	$3.75	$3.75

Answer 1

Formula for CPI is [(Cost of market basket at given year)/ cost of market basket in base year ]*100

So cost of market basket in 2014 = Price of the good in 2014*quantity of goods in base year

= 4*10+9*50+20*3.75

=$ 565

Cost of market basket in base year ie 2010 = quantity in 2010*prices in 2010

= $(3*10)+(50*8)+(3.5*20)

= $ 500

CPI in 2014 = Cost of market basket in 2014/ Cost of market basket in 2010 *100 = (565/500)*100 = 113

(you can comment for doubts )