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 ($) Current Price ($) Shower curtain 8. 85 15. 66 Floor rug 71. 25 119. 75 T-shirt 13. 95 23. 99 Oscillating fan 22. 75 37. 50 Using the prices shown on this chart, which of the following is a reasonable estimate of the current CPI? a. 164 b. 170 c. 185 d. 199.

Answer 1

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

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,

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

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

Cost of market basket in current period is

$\rm C_t=15.66+119.75+23.99+37.50\\\\C_t=196.9$

Cost of market basket in 1983 is,

$\rm C_0=8.85+71.25+13.95+22.7\\\\C_0=116.8$

Substitute all the values in the formula

$\rm CPI_t=\dfrac{C_t}{C_0}\times 100\\\\\rm CPI_t=\dfrac{196.9}{116.8}\times 100\\\\\rm CPI_t=1.685\times 100 \\\\ CPI_t=168.5\\\\\rm CPI_t= 170 \ \rm approx$

Thus the value of current CPI is 168.5 which is near about the 170.

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

Learn more about the customer price index here;

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