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 a magazine cost in 2007?
a. $1.87
b. $2.08
c. $2.32
d. $3.00

Answer 1

Answer:

$2.5

Explanation:

Given:

Number of sandwiches in basket = 20

Number of magazines in basket = 30

cost of sandwiches in 2006 = $4

Cost of magazines in 2006 = $2

cost of sandwiches in 2007 = $5

Consumer price index in 2007 = 125

Now,

Consumer price index = $\frac{\sum(p_1q0)}{\sum(p_0q0)}\times100$

or

125 = $\frac{20\times\ 5+30\times X}{20\times\ 4+30\times\ 2}\times100$

here,

X is the price of magazines in 2007

thus,

125 = $\frac{\ 100+30\times X}{ 80+ 60}\times100$

or

1.25 × ($80 + $60 ) = $100 + 30X

or

30X = $175 - $100

or

X = $2.5

Hence,

The price of magazines in 2007 was $2.5