In a simple economy, people consume only 2 goods, food and clothing. The market basket of goods used to compute the CPI consists of 50 units of food and 10 units of clothing.
Food
Clothing
2002 price per unit
$4
$10
2003 price per unit
$6
$20
a.
What are the percentage increases in the price of food and in the price of clothing?
b.
What is the percentage increase in the CPI?
c.
Do these price changes affect all consumers to the same extent? Explain.
In a simple economy, people consume only 2 goods, food and clothing. The market basket of goods used to compute the CPI consists of 50 units of food and 10 units of clothing.
| Food | Clothing | |
| 2002 price per unit | $4 | $10 |
| 2003 price per unit | $6 | $20 |
| a. | What are the percentage increases in the price of food and in the price of clothing? |
| b. | What is the percentage increase in the CPI? |
| c. | Do these price changes affect all consumers to the same extent? Explain. |
Related textbook solutions
Related questions
1) Assume there is a simple economy where people consume only 2 goods, food and clothing. Further assume that the market basket of goods used to compute the CPI consists of 100 units of food and 20 units of clothing.
| Food | Clothing | |
| 2004 price per unit | $8 | $20 |
| 2005 price per unit | $12 | $40 |
Compute the percentage changes in the price of food and the percentage change in the price of clothing between 2004 and 2005.
Calculate the percentage change in the CPI between 2004 and 2005.\
Do you think the CPI price changes affect all consumers in the economy to the same extent? Explain
1) Assume there is a simple economy where people consume only 2 goods, food, and clothing. Further, assume that the market basket of goods used to compute the CPI consists of 100 units of food and 20 units of clothing.
|
|
Food |
Clothing |
|
2004 price per unit |
$8 |
$20 |
|
2005 price per unit |
$12 |
$40 |
Compute the percentage changes in the price of food and the percentage change in the price of clothing between 2004 and 2005.
Calculate the percentage change in the CPI between 2004 and 2005.
Do you think the CPI price changes affect all consumers in the economy to the same extent? Explain.
2) Calculate how much each of the following items is worth in terms of today's dollars using 180 as the price index for today.
a. In 1925, the CPI was 18 and the price of a movie ticket was $0.30.
b. In 1930, the CPI was 14 and a cook earned $20 a week.
c. In 1940, the CPI was 16 and a gallon of gas cost $0.20.
3) The table below uses data for 3 hypothetical countries. All the number values are in thousands. Complete the blank entries in the table below.
|
Country |
Adult Population |
Labor Force |
Employed |
Unemployed |
Unemployment Rate |
Labor-Force Participation Rate |
|
A |
120,000 |
60,000 |
4,500 |
|||
|
B |
28,000 |
3,000 |
60 |
|||
|
C |
70,000 |
40,000 |
10 |
4) The following table indicates U.S. real GDP data. Calculate real GDP per person for 1987 and 2005. Then use real GDP per capita to compute the percentage change in real GDP per person from 1987 to 2005.
|
Year |
Real GDP (2000 prices) (in million) |
Population (in million) |
|
1987 |
$6,435,000 |
243 |
|
2005 |
$11,092,000 |
296.6 |
