Question

QUESTION 25

The CPI basket contains 400 oranges and 800 pens. In the base year, the price of an orange is $1.00 and the price of a pen is
$0.75. This year, urban consumers each buy 300 oranges at $2.00 each and 850 pens at $1.00 each. The CPI this year is

Answer 1

160

Step-by-step explanation:

Given: CPI basket contain 400 oranges and 800 pens.

In the base year, price of oranges is $1 and pen is $0.75.

This year urban customer buy oranges at $2 each and pens at $1 each.

To find consumer price index (CPI), we need to check price of basket in current year and base year.

∴ Current year´s price for 400 oranges and 800 pens =
`400* 2= \$ 800\\800* 1= \$ 800`

Now, adding the price to get cost of basket

Cost of basket in current year=
`800+800= \$ 1600`

Base year´s price for 400 oranges and 800 pens=
`400* 1= \$ 400\\800* 0.75= \$ 600`

Cost of basket in base year=
`400+600 = \$ 1000`

Next, calculating the CPI of this year

Formula; CPI=
`\frac{\textrm{ Cost of basket in current year}}{\textrm{ cost of basket in the base year}} * 100`

CPI for the year =
`(1600)/(1000) * 100 = 160`

∴ Consumer price index (CPI) = 160.