Question

The typical consumer's food basket in the base year 2015 is as follows: 30 chickens at $2 each, 10 hams at $6 each, and 10 steaks at $8 each. A chicken feed shortage causes the price of chickens to rise to $5.00 each in the year 2016. Hams rise to $7.00 each, and the price of steaks is unchanged. Calculate the change in the "cost-of-eating" index between 2015 and 2016.

Answer 1

To calculate the change in the "cost-of-eating" index between 2015 and 2016, find the total cost of the food basket in each year by multiplying the quantity by the price of each item, and then compare the two totals.

Step-by-step explanation:

The student has asked how to calculate the change in the "cost-of-eating" index between 2015 and 2016 due to changes in the prices of chickens, hams, and steaks. To do this, we calculate the total cost of the consumer's food basket in both years and compare them. In the base year 2015, the food basket cost is (30 chickens × $2) + (10 hams × $6) + (10 steaks × $8). In 2016, the cost becomes (30 chickens × $5) + (10 hams × $7) + (10 steaks × $8). By subtracting the base year cost from the 2016 cost, we find the change in the index.