Essentials Of Economics, Loose-leaf Version
Essentials Of Economics, Loose-leaf Version
8th Edition
ISBN: 9781337096898
Author: N. Gregory Mankiw
Publisher: South-Western College Pub
Question
Book Icon
Chapter 16, Problem 3PA

Subpart (a):

To determine

Measuring percentage change in price, CPI and Inflation rate.

Subpart (a):

Expert Solution
Check Mark

Explanation of Solution

The percentage change in price of the good is calculated by using the following formula:

Percentage change in price =PricePresent yearPricePrevious yearPricePrevious year×100 (1)

Substitute respective values in equation (1) to calculate the percentage price change for the tennis ball.

Percentage change in priceTennis ball=222×100=0%

The percentage change in price for Tennis ball is 0.

Substitute respective values in equation (1) to calculate the percentage price change for the golf ball.

Percentage change in priceGolf ball=644×100=50%

The percentage change in price for golf ball is 0.

Substitute respective values in equation (1) to calculate the percentage price change for the galorade.

The percentage change in price of golf balls is 50%.

Percentage change in priceGatorade=211×100=100%

The percentage change in price of bottle of gatorade is 100%.

Economics Concept Introduction

Concept Introduction:

Consumer Price index (CPI): It is a measure that examines the changes in price levels of a basket of consumer goods and services which includes food and energy prices.

Inflation rate: It is a measure of the percentage change in the price index from the preceding period.

Subpart (b):

To determine

Measuring percentage change in price, CPI and Inflation rate.

Subpart (b):

Expert Solution
Check Mark

Explanation of Solution

Thebase year is 2017. The consumer price index (CPI) can be calculated by using the following formula.

CPI      =((Present price1×Quantity1)+(Present price2×Quantity2)+...+(Present pricen×Quantityn))((Base year price1×Quantity1)+(Base year price2×Quantity2)+...+(Base year pricen×Quantityn))×100 (1)

Substitute the respective values in equation (1) to calculate the CPI for the year 2017.

CPI2017=(2×100)+(4×100)+(1×200)(2×100)+(4×100)+(1×200)×100=200+400+200200+400+200×100=800800×100=100

CPI in the year 2017 is 100.

Substitute the respective values in equation (1) to calculate the CPI for the year 2018.

CPI2018=(2×100)+(6×100)+(2×200)(2×100)+(4×100)+(1×200)×100=200+600+400200+400+200×100=1,200800×100=150

CPI in the year 2018 is 150.

The overall change in price using CPI is calculated as follows:

Overall percentage change in price =CPIPresentCPIPreviousCPIPrevious×100=150100100×100=50%

Thus, the overall change in price is 50%.

Economics Concept Introduction

Concept Introduction:

Consumer Price index (CPI): It is a measure that examines the changes in price levels of a basket of consumer goods and services which includes food and energy prices.

Inflation rate: It is a measure of the percentage change in the price index from the preceding period.

Subpart (c):

To determine

Measuring percentage change in price, CPI and Inflation rate.

Subpart (c):

Expert Solution
Check Mark

Explanation of Solution

When the bottle of Gatorade increased in size from 2017 to2018, its value would be greater than before. As a result, this would lower the estimation of inflation rate.

Economics Concept Introduction

Concept Introduction:

Consumer Price index (CPI): It is a measure that examines the changes in price levels of a basket of consumer goods and services which includes food and energy prices.

Inflation rate: It is a measure of the percentage change in the price index from the preceding period.

Subpart (d):

To determine

Measuring percentage change in price, CPI and Inflation rate.

Subpart (d):

Expert Solution
Check Mark

Explanation of Solution

More flavors enhance consumers’ well-being which would result in change in quality and thus would lower the estimate of the inflation rate.

Economics Concept Introduction

Concept Introduction:

Consumer Price index (CPI): It is a measure that examines the changes in price levels of a basket of consumer goods and services which includes food and energy prices.

Inflation rate: It is a measure of the percentage change in the price index from the preceding period.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
A health study tracked a group of persons for five years. At the beginning of the study, 20%were classified as heavy smokers, 30% as light smokers, and 50% as nonsmokers. Resultsof the study showed that light smokers were twice as likely as nonsmokers to die duringthe five-year study, but only half as likely as heavy smokers.A randomly selected participant from the study died during the five-year period. Calculatethe probability that the participant was a heavy smoker
Consider two assets with the following returns: State Prob. of state R₁ R2 1 23 13 25% 5% 2 -10% 1% Compute the optimal portfolio for an investor having a Bernoulli utility of net returns u(r) = 2√√r+ 10. Compute the certainty equivalent of the optimal portfolio. Do the results change if short-selling is not allowed? If so, how?
In the graph at the right, the average variable cost is curve ☐. The average total cost is curve marginal cost is curve The C Cost per Unit ($) Per Unit Costs A 0 Output Quantity B
Knowledge Booster
Background pattern image
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
MACROECONOMICS FOR TODAY
Economics
ISBN:9781337613057
Author:Tucker
Publisher:CENGAGE L
Text book image
Economics For Today
Economics
ISBN:9781337613040
Author:Tucker
Publisher:Cengage Learning
Text book image
Survey Of Economics
Economics
ISBN:9781337111522
Author:Tucker, Irvin B.
Publisher:Cengage,
Text book image
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning
Text book image
Macroeconomics
Economics
ISBN:9781337617390
Author:Roger A. Arnold
Publisher:Cengage Learning
Text book image
MACROECONOMICS
Economics
ISBN:9781337794985
Author:Baumol
Publisher:CENGAGE L