A typical consumer's "leisure basket" in the base year 2019 is as follows: 20 movie tickets $15.00 each 4 theme park tickets $80.00 each 30 swimming passes $10.00 each 2 interstate holidays $400 each 1 international holiday $2000 each The closure of international borders decreases demand for international holidays in 2020. This causes interstate holidays to rise in price to $800 each. The price of other items in the leisure basket are unchanged. a. Calculate the change (as a percentage) in the "leisure index" between 2019 and 2020. b. Suppose consumer preferences change in 2020 and they are completely indifferent between two interstate holidays and one international holiday. In this situation, how large is the substitution bias in the "leisure index"? c. Explain how biases in the "leisure index" create a difference between the price changes consumers experience and the price changes described by the "leisure index".
A typical consumer's "leisure basket" in the base year 2019 is as follows:
20 movie tickets $15.00 each
4 theme park tickets $80.00 each
30 swimming passes $10.00 each
2 interstate holidays $400 each
1 international holiday $2000 each
The closure of international borders decreases demand for international holidays in 2020. This causes interstate holidays to rise in
a. Calculate the change (as a percentage) in the "leisure index" between 2019 and 2020.
b. Suppose consumer preferences change in 2020 and they are completely indifferent between two interstate holidays and one international holiday. In this situation, how large is the substitution bias in the "leisure index"?
c. Explain how biases in the "leisure index" create a difference between the price changes consumers experience and the price changes described by the "leisure index".
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