Question

Select the correct answer.

A basket of goods and services is used to calculate CPI. Assume that the basket contains 5 toothbrushes and 2 tubes of toothpaste. The prices
for those goods are shown in the table.
Year Toothbrush Tube of Toothpaste
year 1 $1.00 each $2.00 each
year 2 $1.25 each $2.10 each
What will the CPI for year 2 be?
CA 9.00
B. 10.45
C. 86.00
D. 116.11

Answer 1

To calculate the CPI for year 2, the total cost of the basket is determined for each year and then compared. The CPI is 116.11, indicating that the correct answer is D. 116.11.

Step-by-step explanation:

The Consumer Price Index (CPI) for year 2 can be calculated using the given prices and quantities of the goods in the basket. To calculate the CPI, we first calculate the total cost of the basket in each year and then compare the year 2 cost to the year 1 cost, which will serve as the base year.

For year 1:

5 toothbrushes at $1.00 each = $5.00

2 tubes of toothpaste at $2.00 each = $4.00

Total cost for year 1 = $5.00 + $4.00 = $9.00

For year 2:

5 toothbrushes at $1.25 each = $6.25

2 tubes of toothpaste at $2.10 each = $4.20

Total cost for year 2 = $6.25 + $4.20 = $10.45

To find the CPI for year 2, we use the following formula:
CPI = (Total cost of the basket in year 2 / Total cost of the basket in year 1) * 100

CPI for year 2 = ($10.45 / $9.00) * 100 = 116.11

Therefore, the correct answer is D. 116.11.

Answer 2

D

Step-by-step explanation:

To calculate CPI, or Consumer Price Index, add together a sampling of product prices from a previous year. Then, add together the current prices of the same products. Divide the total of current prices by the old prices, then multiply the result by 100.

Year 1 = $9

Year 2 = $10.45

$10.45 divided by $9.00 = 1.6111

1.61 x 100 = 116.11