2) Remember the chips and salsa economy from Lab 4? No? Well, assume that only two goods matter in this economy: "chips" and "salsa." Suppose that the consumers in this economy are indifferent, i.e gain the same amount of utility, from the following combinations of chips and salsa (6-month consumption): Chips (in lbs) Salsa (in quarts) 20 140 30 90 50 50 70 40 110 30 Use this information to answer the questions below. Suppose that, in the year 2021, the price of a pound of chips is $1.00, and the price of a quart of a) salsa is $3.00. Find the cost-minimizing combination of chips and salsa from the table above and calculate the total expenditure necessary to purchase this bundle. Now suppose that, in 2022, the price of a pound of chips is $4.00 and the price of a quart of salsa b) is $3.00. How much would it cost to purchase the chips/salsa combination from part (a)? c) Find the new minimum-cost bundle using the 2022 prices. d) Compute the Consumer Price Index (CPI) in this economy using the prices from 2021 as the base-year prices that is, use your answers from (a) and (b) to obtain the CPI. Compare the amount of consumer spending from part (b) and part (c). How does this compare to e) the cost-of-living changes measured by the CPI?
2) Remember the chips and salsa economy from Lab 4? No? Well, assume that only two goods matter in this economy: "chips" and "salsa." Suppose that the consumers in this economy are indifferent, i.e gain the same amount of utility, from the following combinations of chips and salsa (6-month consumption): Chips (in lbs) Salsa (in quarts) 20 140 30 90 50 50 70 40 110 30 Use this information to answer the questions below. Suppose that, in the year 2021, the price of a pound of chips is $1.00, and the price of a quart of a) salsa is $3.00. Find the cost-minimizing combination of chips and salsa from the table above and calculate the total expenditure necessary to purchase this bundle. Now suppose that, in 2022, the price of a pound of chips is $4.00 and the price of a quart of salsa b) is $3.00. How much would it cost to purchase the chips/salsa combination from part (a)? c) Find the new minimum-cost bundle using the 2022 prices. d) Compute the Consumer Price Index (CPI) in this economy using the prices from 2021 as the base-year prices that is, use your answers from (a) and (b) to obtain the CPI. Compare the amount of consumer spending from part (b) and part (c). How does this compare to e) the cost-of-living changes measured by the CPI?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
d) and e)
Transcribed Image Text:2)
Remember the chips and salsa economy from Lab 4? No? Well, assume that only two goods matter
in this economy: "chips" and "salsa." Suppose that the consumers in this economy are indifferent, i.e
gain the same amount of utility, from the following combinations of chips and salsa (6-month
consumption):
Chips
(in lbs)
Salsa
(in quarts)
20
140
30
90
50
50
70
40
110
30
Use this information to answer the questions below.
Suppose that, in the year 2021, the price of a pound of chips is $1.00, and the price of a quart of
a)
salsa is $3.00. Find the cost-minimizing combination of chips and salsa from the table above and
calculate the total expenditure necessary to purchase this bundle.
Now suppose that, in 2022, the price of a pound of chips is $4.00 and the price of a quart of salsa
b)
is $3.00. How much would it cost to purchase the chips/salsa combination from part (a)?
c)
Find the new minimum-cost bundle using the 2022 prices.
d)
Compute the Consumer Price Index (CPI) in this economy using the prices from 2021 as the
base-year prices that is, use your answers from (a) and (b) to obtain the CPI.
Compare the amount of consumer spending from part (b) and part (c). How does this compare to
e)
the cost-of-living changes measured by the CPI?
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