Question

In an imaginary economy, consumers buy only sandwiches and magazines. The fixed basket consists of 20 sandwiches and 30 magazines. In 2006, a sandwich cost $4 and a magazine cost $2. In 2007, a sandwich cost $5. The base year is 2006. if the consumer price index in 2007 was 125, then how much did the magazine cost in 2007?

Answer 1

Answer:

$2.5

Explanation:

Given:

Sandwich Cost in 2006 (P0) = $4

Magazine Cost in 2006 (p0) = $2

Sandwich Cost in 2007 (P1) = $5

Magazine Cost in 20067 (p1) = ?

Consumer Price Index in 2007 = 125

Computation:

Consumer Price Index = (Current year price / Base year Price)100

125= (p1 / $2) x 100

1.25 = p1 / $2

1.25 x $2 = p1

$2.50 = p1

$2.50 = Magazine Cost In 2007

Therefore, cost of magazine in 2007 is $2.50