The typical consumer’s food basket in the base year 2015 is as follows: 30 chickens at $3 each 10 hams at $5 each 10 steaks at $8 each A chicken feed shortage causes the price of chickens to rise to $5.00 each in the year 2016. Hams rise to $7.00 each, and the price of steaks is unchanged. a. Calculate the change in the “cost-of-eating” index between 2015 and 2016. Year Cost of the basket 2015 $ 2016 $ Instructions: Enter your responses rounded to one decimal place. The official cost-of-eating index has (Click to select) decreased increased by %. b. Suppose that consumers are completely indifferent between two chickens and one ham. For this example, how large is the substitution bias in the official “cost-of-eating” index? The increase in the cost-of-eating index is _______%. The overestimate of inflation in the cost of eating reflects substitution bias.
The typical consumer’s food basket in the base year 2015 is as follows:
30 chickens at $3 each
10 hams at $5 each
10 steaks at $8 each
A chicken feed shortage causes the price of chickens to rise to $5.00 each in the year 2016. Hams rise to $7.00 each, and the price of steaks is unchanged.
a. Calculate the change in the “cost-of-eating” index between 2015 and 2016.
| Year | Cost of the basket |
| 2015 | $ |
| 2016 | $ |
Instructions: Enter your responses rounded to one decimal place.
The official cost-of-eating index has (Click to select) decreased increased by %.
b. Suppose that consumers are completely indifferent between two chickens and one ham. For this example, how large is the substitution bias in the official “cost-of-eating” index?
The increase in the cost-of-eating index is _______%. The overestimate of inflation in the cost of eating reflects substitution bias.
(i am having trouble with part b primarily.)
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
