Answered: x, the College Student Price Index…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Calculating inflation using a simple price index

Consider a fictional price index, the College Student Price Index (CSPI), based on a typical college student’s annual purchases. Suppose the following table shows the information on the market basket for the CSPI and the prices of each of the goods in 2017, 2018, and 2019.

The cost of each item in the basket and the total cost of the basket are shown for 2017.

Question1

In the last row of the table, calculate and enter the value of the CSPI for the remaining years.

Between 2017 and 2018, the CSPI increased by_________%

Between 2018 and 2019, the CSPI increased by__________%

Question2

Which of the following, if true, would illustrate why price indexes such as the CSPI might overstate inflation in the cost of going to college? Check all that apply.

A. Professors required each student to buy 10 textbooks, regardless of the price.

B. The quality and design of calculators improved dramatically from 2017 to 2019. For example, calculators made in 2019 accept memory cards, whereas those made in 2017 do not, but this quality change is hard to measure.

C. As the price of textbooks increased, more and more students turned to the used-book market or chose not to buy textbooks at all, instead using the copies on reserve in the library

D. A new, safe method of memory enhancement became available for purchase.

Suppose the base year for this price index is 2017.
In the last row of the table, calculate and enter the value of the CSPI for the remaining years.
Between 2017 and 2018, the CSPI increased by
Between 2018 and 2019, the CSPI increased by
%
Which of the following, if true, would illustrate why price indexes such as the CSPI might overstate inflation in the cost of going to college? Check all
that apply.
Professors required each student to buy 10 textbooks, regardless of the price.
The quality and design of calculators improved dramatically from 2017 to 2019. For example, calculators made in 2019 accept memory
cards, whereas those made in 2017 do not, but this quality change is hard to measure.
As the price of textbooks increased, more and more students turned to the used-book market or chose not to buy textbooks at all,
instead using the copies on reserve in the library.
A new, safe method of memory enhancement became available for purchase.

1. Calculating inflation using a simple price index
Consider a fictional price index, the College Student Price Index (CSPI), based on a typical college student's annual purchases. Suppose the following
table shows information on the market basket for the CSPI and the prices of each of the goods in 2017, 2018, and 2019.
The cost of each item in the basket and the total cost of the basket are shown for 2017.
Perform these same calculations for 2018 and 2019, and enter the results in the following table.
2017
2018
2019
Price
Cost
Price
Cost
Price
Cost
Quantity in Basket
(Dollars)
(Dollars)
(Dollars)
(Dollars)
(Dollars)
(Dollars)
Notebooks
10
50
7
11
Calculators
1
100
100
110
140
Large coffees
150
1
150
1
1
Energy drinks
50
2
100
3
4
Textbooks
10
100
1,000
120
150
Total cost
1,400
Price index
100
Suppose the base year for this price index is 2017.
In the last row of the table, calculate and enter the value of the CSPI for the remaining years.

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