Question

The CPI for "personal computers and peripheral equipment" in June 2006 was 10.7 (1982-1984 = 100). Interpret this index.

A. There was no significant increase in the price of "personal computers and peripheral equipment"
B. The price of "personal computers and peripheral equipment" increased 10.7%.
C. The price of "personal computers and peripheral equipment" decreased 89.3%.
D. If the average price of a computer in 1982-1984 was $3000.00, the CPI for "personal computers and peripheral equipment" would predict that the price of a computer in June 2006 would be $893.

Answer 1

The answer is "Option B"

Explanation:

`CPI = 10.7 \ in \ (\ june, \ 2006) \\\\CPI_(2006)= (\ cost \ of \ basket \ of \ year \ 2006)/(\ cost \ of \ basket \ of \ year \ 1982 \ to \ 84) * 100\\\\(10.7)/(100) =(\ cost \ of \ basket \ of \ year \ 2006)/(\ cost \ of \ basket \ of \ year \ 1982 \ to \ 84)\\\\`

The cost of basket
`_(1982 \ to 1984) * 0.107= \ cost \ of \ basket_(2006) \\\\`

`\ cost \ of \ basket_(1982 \ to 1984) \ is \ given \ as \ 100\\\therefore \ \ cost \ of \ basket_(2006) = 100 * 0.107\\\\`

`\ = 10.7\\\\`

So, the answer is 10.7 % .

Answer 2

C. The price of "personal computers and peripheral equipment" decreased 89.3%.

Explanation:

Consumer Price Index (CPI) measures change in price level, of weighted average market basket of consumer goods & services produced by households.

CPI calculated change in current year price level with regards to base year price level, base year price = 100. CPI > 100 implies that inflation (price rise) has occurred in current year from base year. CPI < 100 implies that deflation (price fall) has occurred in current year from base year.

CPI for 'personal computers & equipment' = 10.7 implies that prices of 'personal computers & equipment' have fallen or deflated. As per base year price = 100, prices have fallen by 100 - 10.7 = 89.3%