Principles of Economics (Second Edition)
2nd Edition
ISBN: 9780393614077
Author: coppock, Lee; Mateer, Dirk
Publisher: W. W. Norton & Company
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Chapter 21, Problem 3QFR
To determine
To explain:
Whether an increase of 5% in prices of homes oran increase of 10% in prices of concert ticketswill have the larger impact on the
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If the prices of homes go up by 5% and the prices of concert tickets rise by 10%, which will have the larger impact on the CPI? Why?
The weight of the item such as food or housing will determine the effect of price changes on CPI
TRUE
FALSE
What is CPI? Define it and discuss why it is important.
Chapter 21 Solutions
Principles of Economics (Second Edition)
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- Explain the two limitations of the CPIarrow_forwarddiscuss the problems of cpiarrow_forwardOver a long period of time, the price of a candybar rose from $0.20 to $1.20. Over the same period,the CPI rose from 150 to 300. Adjusted for overallinflation, how much did the price of the candy barchange?arrow_forward
- Describe the three problems that make the CPI animperfect measure of the cost of living.arrow_forwardWhat is the purpose of the "Core" CPI and how is it different from the overall CPI? Do you think that the core CPI, or "core inflation" would be useful for measuring the cost of living and for indexing wages to inflation? Why or why not?arrow_forwardThe biggest problem with constructing the CPI is that the basket of goods that the typical consumer buys keeps changing. the monetary base keeps changing the velocity of money is constant the base year is arbitraryarrow_forward
- Enlighten at least two reasons of the CPI as an imperfect measure of the cost of living.arrow_forwardConsider the following basket of student essentials: 2019 2020 Burritos $6.30 $6.60 Pizzas $9.90 $10.00 Movie Tickets $10.00 $10.50 Energy Drinks $4.99 $5.99 a. Using 2019 as the base year, what is the CPI in 2019? b. Assume students buy 30 burritos, 25 pizzas, 15 movie tickets, and 200 energy drinks each year. What is the CPI in 2020 using 2019 as a base year? What is the inflation rate? Would this rate be higher or lower if students bought more energy drinks?arrow_forwardSuppose the current CPI is 252 and in 2005 it was 196. A pair of Levi's jeans costs $43 today. Based on the CPIs, what would you expect the 2005 price to have been for the same style of Levis, in a similar retail outlet? Round your answer to two decimal places. 0 $ Click or tap the numbers or use your keyboard to type. If you're not sure, just take a guess. 1 2 3 4 5 6 7 8 9 Donearrow_forward
- Why is the CPI is called a price index?arrow_forwardThe CPI’s basket of goods includes potato chips, over half of which are made from potatoes grown in Idaho. Wildfires this summer destroyed acres of potato crops in Idaho, causing a spike in the price of potatoes, and there was a 30% increase in the price of potato chips. As a result, the CPI calculation showed an increase of 2% in the Fall of this year versus last year. Please explain if this 2% increase is reflective of the overall price level, and if not, why?arrow_forwardWhen Disney's Magic Kingdom in Orlando, Florida, opened in 1971, the price of admission was $3.50 per day. In 2020, the ticket price was $109 per day. Instructions: In parts a and c, enter your responses as a percentage rounded to the nearest whole number. In part b, round your response to two decimal places. a. By how much did the nominal price of a Disney ticket increase from 1971 to 2020? 3014 % b. The CPI index was 40.5 in 1971 and 261 in 2020. What was the 1971 price in 2020 dollars? 22.68 % c. By how much did the real price of a ticket increase from 1971 to 2020? 380 %arrow_forward
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