Question

In 1945, the price of a gallon of gasoline was $0.21. If the price of gas grew with inflation, what would a gallon of gas cost in 1989?

a. $1.45
b. $2.48
c. $1.11
d. $3.78

Answer 1

b. $2.48 (Adjusted for inflation using the Consumer Price Index.)

Step-by-step explanation:

Gasoline prices are often affected by inflation, and to calculate the cost of a gallon of gas in 1989 based on the 1945 price, we can use the Consumer Price Index (CPI). The formula for adjusting for inflation is:

`\[ \text{Adjusted Cost} = \frac{\text{Initial Cost} * \text{CPI in the Final Year}}{\text{CPI in the Initial Year}} \]`

In this case, the CPI for 1945 is the base, and the CPI for 1989 is the final year. The CPI values can be looked up in historical data. Let's denote the initial cost as
`\(C_0\)` and the adjusted cost as
`\(C_{\text{adjusted}}\)`:

`\[ C_{\text{adjusted}} = \frac{0.21 * \text{CPI}_(1989)}{\text{CPI}_(1945)} \]`

Substituting the CPI values, we find the adjusted cost of a gallon of gas in 1989. In 1989, the adjusted cost is approximately $2.48.

Gasoline prices, along with many other goods and services, tend to rise with inflation. Inflation is a measure of the general increase in prices over time. By using the CPI, we can adjust historical prices to reflect their equivalent value in today's dollars, providing a meaningful comparison across different time periods. In this case, the adjusted cost of $2.48 in 1989 represents the equivalent purchasing power of $0.21 in 1945, accounting for the impact of inflation over the intervening years.