Question

The prices of consumer goods do not always exactly follow the CPI. The following chart shows several consumer items, along with their respective prices in 1983 and today. Item Price in 1983 ($) Current Price ($) Pair of boots 67. 45 126. 85 Hair dryer 15. 25 29. 95 Box of tissues 1. 15 2. 25 Toaster 22. 85 44. 25 Using the prices shown on this chart, which of the following is a reasonable estimate of the current CPI? a. 208 b. 195 c. 180 d. 173.

Answer 1

Customer price index is the price index which measures the weight average of price of basket of customers goods or services. The reasonable estimate of the current customer price index is 195. The option B is the correct option.

Given information-

The data table for the given problem is attached below.

Customer price index

Customer price index is the price index which measures the weight average of price of basket of customers goods or services. It can be given as,

$CPI_t=\dfrac{C_t}{C_0} \times 100$

Here $C_t$ is the cost of market basket in current period and $C_0$ is the cost of market basket in the base period.

Cost of market basket in current period is.

$C_t=126.85+29.95+2.25+44.25\\C_t=203.3$

Cost of market basket in 1983 is,

$C_0=67.45+15.25+1.15+22.85\\C_0=106.7$

Put the value in the customer price index formula,

$CPI_t=\dfrac{203.3}{106.7} \times 100\\CPI_t=190.5$

Thus the value of current CPI is 190.5 which is near about the 195.

Hence the reasonable estimate of the current customer price index is 195. The option B is the correct option.

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