Question

Consider a fictional price index, the College Student Price Index (CSPI), based on a typical college student's annual purchases. Suppose the following table shows information on the market basket for the CSPI and the prices of each of the goods in 2010, 2011, and 2012. The cost of each item in the basket and the total cost of the basket are shown for 2010. Assume the quantity of each item in the basket does not change in 2011 and 2012. Perform these same calculations for 2011 and 2012, and enter the results in the following table. 2012 Price Cost (Dollars) (Dollars) Quantity in Basket 10 2010 2011 Price Cost Price Cost (Dollars) (Dollars) (Dollars) (Dollars) 30 75 75 2 6002 2 1504 90720 110 Notebooks Calculators Large coffees Energy drinks Textbooks 104 300 2 120 Total cost 1,575 Price index 100 Suppose the base year for this price index is 2010. In the last row of the table, calculate and enter the value of the CSPI for the remaining years. Between 2010 and 2011, the CSPI increased by %. Between 2011 and 2012, the CSPI increased by

Answer 1

	Quantity in Basket	2010		2011		2012
		Price	Cost	Price	Cost	Price	Cost
		(Dollars)	(Dollars)	(Dollars)	(Dollars)	(Dollars)	(Dollars)
Notebooks	10	3	30	3	30	4	40
Calculators	1	75	75	80	80	104	104
Large coffees	300	2	600	2	600	2	600
Energy drinks	75	2	150	4	300	5	375
Textbooks	8	90	720	110	880	120	960
Total cost			1575		1890		2079
Price index			100		1890/1575*100 = 120		2079/1575*100 = 132

Suppose the base year for this price index is 2010

Between 2010 and 2011, the CSPI increased by 120-100/100*100 = 20%

Between 2011 and 2012, the CSPI increased by 132-120/120*100 = 10%