Question

A small nation of 10 people idolizes the TV show The Voice. All they produce and consume are karaoke machines and CDs, in the following amounts: Karaoke Machines CDs Quantity Price Quantity Price (Dollars) (Dollars) 2017 20 50 60 5 2018 21 70 80 6 Using a method similar to that used to calculate the consumer price index, the percentage change in the overall price level is . (Note: Use 2017 as the base year, and fix the basket at 2 karaoke machine and 6 CDs.)

Answer 1

Answer:35.38%

Explanation: Using basket at 2 karaoke machine and 6 CDS

Value of market basket o in 2017 = ($50 * 2) + ($5 * 6) = $130

Value of market basket in 2018 = ($70 * 2) + ($6 * 6) = $176

-Using 2017 as base year

Customer Price Index in 2017 = ($130 / $130) * 100 = 100

CPI in 2018 = ($176 / $130) * 100 = 135.38

% change in overall price = 135.38- 100= 35.38%

or

Percentage change in overall price=base index- new index / base index X 100

= $176 - $130/ 130= 46/130= 0.3538 x 100 = 35.38%.