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Isn't the market basket suppose to be base year units x current price? I can see we ended up with the same answer for 2011 but its beacuase its the base year. But the other years I'm confused. For example, for the year 2013, wouldn't it be 90 textbooks x $65 = $5850 75 hamburgers x $2.25 = $168.75 50 shirts x $25 = $1250 100 cotton x $0.70 = $70 with a market basket value for 2012 being 7338.75?

Isn't the market basket suppose to be base year units x current price? I can see we ended up with the same answer for 2011 but its beacuase its the base year. But the other years I'm confused. For example, for the year 2013, wouldn't it be 90 textbooks x $65 = $5850 75 hamburgers x $2.25 = $168.75 50 shirts x $25 = $1250 100 cotton x $0.70 = $70 with a market basket value for 2012 being 7338.75?

Economics: Private and Public Choice (MindTap Course List)
Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter7: Taking The Nation's Economic Pulse
Section: Chapter Questions
Problem 8CQ
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Isn't the market basket suppose to be base year units x current price?

I can see we ended up with the same answer for 2011 but its beacuase its the base year. But the other years I'm confused.

For example, for the year 2013, wouldn't it be

90 textbooks x $65 = $5850

75 hamburgers x $2.25 = $168.75

50 shirts x $25 = $1250

100 cotton x $0.70 = $70

with a market basket value for 2012 being 7338.75?

I've uploaded a screenshot of our notes unless the tutor is wrong cause we all make mistakes. We are humans after all.

Example 2: Consider an economy that produces and consumes two types of goods- patties and sodas as depicted in table 9.1 below. Calculate the CPI for all three years using year 2008 as the base year. Year 2008 2009 2010 Cost of market basket in 2008 using current 2008 price Patties = (20 units x $80) = $1600 Soda = (10 units x $60) = $600 Units Purchased 20 15 Total Cost in 2008 = $2200 Patties 10 Price 80 100 120 Table 9.1: Table showing the Number of Units and Price of the two goods Purchased in this Economy- Patties and soda To calculate the CPI we need: 1. Cost of market basket in the given year - this is found by multiplying the units of each good purchased in the base year by the price of the good in the given year then sum across goods. (Base Year units purchased by current price) Cost of market basket in 2009 using current 2009 price Patties = (20 units x $100) = $2000 Soda = (10 units x $100) = $1000 Total Cost in 2009 = $3000 Soda Units Purchased 10 10 12 Cost of market basket in base year (2008) Patties = (20 units x $80) = $1600 Soda = (10 units x $60) = $600 Total Cost in 2008 = $2200 Price 60 100 110 Cost of market basket in 2010 using current 2010 price Patties= (20 units x $120) = $2400 2. Cost of market basket in the base year - this is found by multiplying the units of each good purchased in the base year by the price of the good in the given year then sum across goods. (Base year units purchased by prices in given year) Soda = (10 units x $110) = $1100 Total Cost in 2010 = $3500 Recall: Base Year given in the question is 2008. So to calculate cost of basket in base year it is the base year production multiplied by prices from the given year.
Transcribed Image Text:Example 2: Consider an economy that produces and consumes two types of goods- patties and sodas as depicted in table 9.1 below. Calculate the CPI for all three years using year 2008 as the base year. Year 2008 2009 2010 Cost of market basket in 2008 using current 2008 price Patties = (20 units x $80) = $1600 Soda = (10 units x $60) = $600 Units Purchased 20 15 Total Cost in 2008 = $2200 Patties 10 Price 80 100 120 Table 9.1: Table showing the Number of Units and Price of the two goods Purchased in this Economy- Patties and soda To calculate the CPI we need: 1. Cost of market basket in the given year - this is found by multiplying the units of each good purchased in the base year by the price of the good in the given year then sum across goods. (Base Year units purchased by current price) Cost of market basket in 2009 using current 2009 price Patties = (20 units x $100) = $2000 Soda = (10 units x $100) = $1000 Total Cost in 2009 = $3000 Soda Units Purchased 10 10 12 Cost of market basket in base year (2008) Patties = (20 units x $80) = $1600 Soda = (10 units x $60) = $600 Total Cost in 2008 = $2200 Price 60 100 110 Cost of market basket in 2010 using current 2010 price Patties= (20 units x $120) = $2400 2. Cost of market basket in the base year - this is found by multiplying the units of each good purchased in the base year by the price of the good in the given year then sum across goods. (Base year units purchased by prices in given year) Soda = (10 units x $110) = $1100 Total Cost in 2010 = $3500 Recall: Base Year given in the question is 2008. So to calculate cost of basket in base year it is the base year production multiplied by prices from the given year.
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