Question

Suppose 2005 is the base year and the market basket is worth $1,350 in 2001 and $1,500 in 2005. The values of this price index was in 2001 and in 2005.

(A) 25; 100
(B) 90; 100
(C) 95; 100
(D) 100; 105
(E) 100; 111

Answer 1

The price index for 2001 is calculated by dividing the market basket value of 2001 by the market basket value of the base year 2005 and then multiplying by 100, which results in a price index of 90 for 2001 and 100 for 2005 option (b).

Step-by-step explanation:

To determine the price index of a given year, we take the market basket value of that year, divide it by the market basket value in the base year, and multiply by 100. Since 2005 is our base year with a market basket worth $1,500, it will serve as our reference point and will have a price index of 100. To calculate the price index for 2001, we use the following calculation:

Price Index for 2001 = (Market Basket Value in 2001 / Market Basket Value in Base Year) × 100

Price Index for 2001 = ($1,350 / $1,500) × 100 = 0.9 × 100 = 90

Hence, the price index value in 2001 is 90, and in the base year 2005, it is 100. The correct answer is (B) 90; 100.