Question

A consumer has two goods in his consumption​ bundle: bread and coffee. The current price of bread is ​$3.00 per loaf and the price of coffee is ​$1.50 per cup. This consumer currently buys 10 loaves of bread per week and 5 cups of coffee. Suppose that the price of bread increases by 15​% and the price of coffee increases by 20​% Using this current consumption​ bundle, calculate the value of the CPI for this consumer. CPI​ = nothing ​(enter your response rounded to two decimal places​).

Answer 1

Basket of goods contains (10 loaves of Breads, 5 cups of coffee)

Cost of Basket available in previous time period
when Price of loaf of bread=$3 and Price of coffee=$1.5

Cost of Basket =10*3+1.5*5=$37.5

Cost of same basket in next year when Price of loaf is $3(1.15)=$3.45 and Price of coffee $1.5(1.2)=$1.8

Cost of Basket in next year=10*3.45+5*1.8=$43.5

CPI = Cost of Basket today/ Cost of Basket in previous period=43.5/37.5=1.16

CPI for this consumer is 1.16

[You can write it in hundreds form by multiplying with 100]