Consider an economy where the consumers buy widgets, cogs, and services. The CPI market basket consists of 128 widgets, 371 cogs, and 891 services. We have the following prices for 2021 and 2022:YearWidget CostCogs CostServices Cost2021103.4957.2628.082022141.3767.9338.00If the base year is 2022, what is the price index for 2021? Round your answer to two digits after the decimal.

Answered: Consider an economy where the consumers…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Consider an economy where the consumers buy widgets, cogs, and services. The CPI market basket consists of 128 widgets, 371 cogs, and 891 services. We have the following prices for 2021 and 2022:

Year	Widget Cost	Cogs Cost	Services Cost
2021	103.49	57.26	28.08
2022	141.37	67.93	38.00

If the base year is 2022, what is the price index for 2021? Round your answer to two digits after the decimal.

Expert Solution

Step 1

The Consumer Price Index(CPI) is a measure of the average change in prices of a basket of goods and services consumed by households over time. It is a widely used indicator of inflation and is published regularly by governments around the world. It is often used to adjust wages, salaries, pensions, and other payments for inflation, as well as to make policy decisions related to monetary and fiscal policy.