### Understanding Consumer Price Index (CPI) with a Market BasketThe consumer price index (CPI) is a measure used for calculating the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. The market basket in this example comprises pizza, t-shirts, and rent.Below is a table that represents the quantities and prices of these items in the base year (Year 1) and the following year (Year 2).#### Market Basket Data| Product | Base Year (Year 1) Quantity | Price in the Base Year | Price in Year 2 ||-----------|-----------------------------|------------------------|-----------------|| Pizza | 15 | $2.00 | $2.50 || T-Shirts | 4 | $10.00 | $9.00 || Rent | 1 | $500.00 | $550.00 |#### Calculation of CPI:1. **Year 1 (Base Year) CPI Calculation:** - Sum of (Quantity \* Price in the Base Year) for all products - Pizza: 15 \* $2.00 = $30.00 - T-Shirts: 4 \* $10.00 = $40.00 - Rent: 1 \* $500.00 = $500.00 - Total cost in the base year = $30.00 + $40.00 + $500.00 = $570.002. **Year 2 CPI Calculation:** - Sum of (Quantity \* Price in Year 2) for all products (using the same quantities as the base year) - Pizza: 15 \* $2.50 = $37.50 - T-Shirts: 4 \* $9.00 = $36.00 - Rent: 1 \* $550.00 = $550.00 - Total cost in Year 2 = $37.50 + $36.00 + $550.00 = $623.503. **CPI Formula:** \[ CPI = \left( \frac{\text{Cost of Market Basket in Current Year}}{\text{Cost of Market Basket in Base Year}} \right) \times 100 \]4. **CPI Calculation:

CPI refers to the measure of average price level of basket of goods and services that is paid by…

The monthly market basket for consumers consists of pizza, t-shirts, and rent. The table below shows market basket quantities and prices for the base year (Year 1) and in the following year. In Year 1, the CPI for the economy is In Year 2, the CPI for this economy is Product Pizza T-Shirts Rent Base Year (Year 1) Quantity 15 4 1 .(Round both answers to one decimal place.) Price in the Base Year $2.00 $10.00 $500.00 Price in Year 2 $2.50 $9.00 $550.00

The monthly market basket for consumers consists of pizza, t-shirts, and rent. The table below shows market basket quantities and prices for the base year (Year 1) and in the following year. In Year 1, the CPI for the economy is In Year 2, the CPI for this economy is Product Pizza T-Shirts Rent Base Year (Year 1) Quantity 15 4 1 .(Round both answers to one decimal place.) Price in the Base Year $2.00 $10.00 $500.00 Price in Year 2 $2.50 $9.00 $550.00

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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