Question

The residents of Vegopia spend all of their income on cauliflower, broccoli, and carrots. In 2016, they spend a total of $250 for 100 heads of cauliflower, $100 for 50 bunches of broccoli, and $250 for 500 carrots. In 2017, they spend a total of $210 for 60 heads of cauliflower, $180 for 90 bunches of broccoli, and $270 for 450 carrots.Year Cauliflower Broccoli Carrots
2016 2.1 1.4 0.1
2017 2.5 1.4 0.3 Using 2016 as the base year, the CPI for 2016 is______, and the CPI for 2017 is______. The inflation rate in 2017 is_____using the CPI.

Answer 1

Answer:

CPI for 2016 = 100

CPI for 2017 = 110

Inflation rate in 2017 = 10%

Explanation:

Before finding Consumer Price Index (CPI), we have to calculate the market basket cost price for each year

2016 market basket cost price =

Cauliflower = $250

Broccoli      = $100

Carrots       = $250

Total cost = $600

2017 market basket cost price =

Cauliflower = $210

Broccoli      = $180

Carrots       = $270

Total cost = $660

We know, CPI = (Cost of market basket in a given year ÷ Cost of market basket in a base year) × 100

As 2016 is the base year, CPI for 2016 = ($600 ÷ $600) × 100 = 100

CPI for 2017 = ($660 ÷ $600) × 100 = 100 = 110

Again, we know, Inflation rate using the CPI = [(CPI for current year - CPI for previous year) ÷ CPI for previous year] × 100

Therefore, Inflation rate using the CPI = [(110 - 100) ÷ 100] × 100 = 10%.