Question

Last year you paid $24 for a round of golf and $12 to rent a golf cart. This year it cost you $30 to golf and $15 to rent a cart. Based on this simple basket of goods, calculate a price index for this year using last year as the base year.

Answer 1

Answer:

Price index = 125

Explanation:

Given:

Last year paid $24 for a round of golf and $12 to rent a golf cart.

This year it cost you $30 to golf and $15 to rent a cart.

Question asked:

Based on this simple basket of goods, calculate a price index for this year using last year as the base year.

Solution:

Total cost of last year = For a round of golf + Rent of a golf cart

                                    =  $24 + $12 = $36

Total cost of this year =  $30 + $15 = $45

Now, we will find price index for this year by using last year as the base year.

As we know:

$Consume\ Price\ Index =\frac{Current\ Period\ Price\ of\ the\ Basket}{Base\ Period\ Price\ of\ the\ Basket} \times100$

                                     $=\frac{45}{36} \times100=\frac{4500}{36} =125$

Thus, price index for this year using last year as the base year is 125