CENGAGENOW FOR ANDERSON/SWEENEY/WILLIAM
CENGAGENOW FOR ANDERSON/SWEENEY/WILLIAM
13th Edition
ISBN: 9781337094399
Author: Cochran
Publisher: IACCENGAGE
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Chapter 20, Problem 17E

Many factors influence the retail price of gasoline. The following table shows the average retail price for a gallon of regular grade gasoline for each year from 2011 through 2014 (U.S. Energy Information Administration website, April 2015).

Year Average Price ($)
2011 3.521
2012 3.618
2013 3.505
2014 3.358
  1. a. Use 2011 as the base year and develop a price index for the retail price of a gallon of regular grade gasoline over this four-year period.
  2. b. Use 2012 as the base year and develop a price index for the retail price of a gallon of regular grade gasoline over this four-year period.

a.

Expert Solution
Check Mark
To determine

Find the price index for the retail price of a gallon of regular grade gasoline over this four-year period by using 2011 as the base year.

Answer to Problem 17E

The price indexes for the retail price of a gallon of regular grade gasoline over this four-year period by using 2011 as the base year are,

YearAverage Price ($)Price relative in Period t
20113.521100
20123.618102.8
20133.50599.5
20143.35895.4

Explanation of Solution

Calculation:

The data shows the average retail price for a gallon of regular grade gasoline for each year from 2011 to 2014.

The price indexes for the retail price of a gallon of regular grade gasoline over this four-year period by using 2011 as the base year are obtained below:

YearAverage Price ($)Price relative in Period t=Price in period tBase period price(100)
20113.5213.5213.521(100)=100
20123.6183.6183.521(100)=102.8
20133.5053.5053.521(100)=99.5
20143.3583.3583.521(100)=95.4

b.

Expert Solution
Check Mark
To determine

Find the price index for the retail price of a gallon of regular grade gasoline over this four-year period by using 2012 as the base year.

Answer to Problem 17E

The price indexes for the retail price of a gallon of regular grade gasoline over this four-year period by using 2012 as the base year are,

YearAverage Price ($)Price relative in Period t
20113.52197.3
20123.618100
20133.50596.9
20143.35892.8

Explanation of Solution

Calculation:

The price indexes for the retail price of a gallon of regular grade gasoline over this four-year period by using 2012 as the base year are obtained below:

YearAverage Price ($)Price relative in Period t=Price in period tBase period price(100)
20113.5213.5213.618(100)=97.3
20123.6183.6183.618(100)=100
20133.5053.5053.618(100)=96.9
20143.3583.3583.618(100)=92.8

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