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

Option (B): 195

on edge.

Answer 2

b. 195

Explanation:

Given :

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

Solution :

Using formula for CPI (IN %) = (CURRENT PRICE/ OLD PRICE )*100

For Pair of boots :

CPI = (126.85/ 67.45 )*100 = 188.06

For Hair dryer

CPI = (29.95/ 15.25 )*100 =196.39

For Box of tissues:

CPI = (2.25/1.15 )*100 = 195.65≈195

For Toaster

CPI = (44.25/22.85 )*100 = 193.65

Thus , the reasonable estimate of current CPI is 195