5. Consider the following basket of student essentials:
2019 |
2020 |
|
Burritos |
$6.30 |
$6.60 |
Pizzas |
$9.90 |
$10.00 |
Movie Tickets |
$10.00 |
$10.50 |
Energy Drinks |
$4.99 |
$5.99 |
a. Using 2019 as the base year, what is the CPI in 2019?
b. Assume students buy 30 burritos, 25 pizzas, 15 movie tickets, and 200 energy drinks each year. What is the CPI in 2020 using 2019 as a base year? What is the inflation rate? Would this rate be higher or lower if students bought more energy drinks?
As per the information given in the question | |||||||
Goods | Year
2019 Price (P) in $ |
Quantity (Q) in 2019 |
Expenditure in 2019 in $ = P x Q | Year
2020 Price (P) in $ |
Quantity (Q) in 2020 |
Expenditure in 2020 in $ = P x Q | |
Burritos | 6.30 | 30 | 189 | 6.60 | 30 | 198 | |
Pizzas | 9.90 | 25 | 247.50 | 10.00 | 25 | 250 | |
Movie Tickets | 10.00 | 15 | 150 | 10.50 | 15 | 157.50 | |
Energy Drinks | 4.99 | 200 | 998 | 5.99 | 200 | 1198 | |
1584.50 | 1803.50 | ||||||
Cost of Basket in 2019 = ∑PxQ = $1584.50 | |||||||
Cost of Basket in 2020 = ∑PxQ = $1803.50 | |||||||
(A) as per the question 2019 is the base year so the CPI of 2019 =100% | |||||||
As because the CPI of the base year is always 100% | |||||||
(B) CPI of 2020 = (Cost of Basket in 2020/Cost of Basket in 2019)x100 = (1803.50/1584.50)x100 = 113.82% | |||||||
(C) Inflation Rate = {(CPI of 2020 - CPI of 2019)/CPI of 2019}x100 | |||||||
Inflation Rate = {(113.82 - 100)/100}x100= 13.82% | |||||||
(D) As per the question if the students buy more energy drinks then the inflation rate will be higher | |||||||
suppose instead of 200 now the students demand 250 of energy drinks then | |||||||
Goods | Year
2019 Price (P) in $ |
Quantity (Q) in 2019 |
Expenditure in 2019 in $ = P x Q | Year
2020 Price (P) in $ |
Quantity (Q) in 2020 |
Expenditure in 2020 in $ = P x Q | |
Burritos | 6.30 | 30 | 189 | 6.60 | 30 | 198 | |
Pizzas | 9.90 | 25 | 247.50 | 10.00 | 25 | 250 | |
Movie Tickets | 10.00 | 15 | 150 | 10.50 | 15 | 157.50 | |
Energy Drinks | 4.99 | 250 | 1247.50 | 5.99 | 250 | 1497.50 | |
1834 | 2103 | ||||||
Cost of Basket in 2019 = ∑PxQ = $1834 | |||||||
Cost of Basket in 2020 = ∑PxQ = $2103 | |||||||
as per the question 2019 is the base year so the CPI of 2019 =100% | |||||||
As because the CPI of the base year is always 100% | |||||||
CPI of 2020 = (Cost of Basket in 2020/Cost of Basket in 2019)x100 = (2103/1834)x100 = 114.67% | |||||||
Inflation Rate = {(CPI of 2020 - CPI of 2019)/CPI of 2019}x100 | |||||||
Inflation Rate = {(114.67 - 100)/100}x100= 14.67% | |||||||
inflation rate calculated after buying more energy drinks is higher than the earlier inflation rate | |||||||
so if the students buy more energy drinks then the inflation rate will be higher |
5. Consider the following basket of student essentials: 2019 2020 Burritos $6.30 $6.60 Pizzas $9.90 $10.00...
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