Question

Consider an economy with only two goods: bread and wine. In 1982, the typical family bought 4 loaves of bread at 50¢ per loaf and 2 bottles of wine for $9 per bottle. In Year X, bread cost 75¢ per loaf and wine cost $10 per bottle. The CPI for Year X (using a 1982 base year) is:

Answer 1

Answer:

115

Explanation:

Data provided in the  question:

Number of breads bought = 4

Number of wine bottles bought = 2

Cost of bread in year 1982 = 50 cents = $0.5

Cost of wine bottle in year 1982 = $9

Cost of bread in year X = 75 cents = $0.75

Cost of wine bottle in year X = $10

Now,

The CPI is calculated as:

CPI = $\frac{\textup{Cost of basket in the given year (i.e year X)}}{\textup{Cost of basket in the base year (i.e 1982)}}\times100$

thus,

CPI for year X = $\frac{\ 0.75\times4+\ 10\times2}{\ 0.5\times4+\ 9\times2}\times100$

or

CPI for year X = $\frac{\ 23}{\ 20}\times100$

or

CPI for year X = 1.15 × 100 = 115