Question

ANSWER ONLY PARTS E AND F PLEASE

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Question: The table below lists the prices and quantities consumed of three different goods from 2010−2012....

The table below lists the prices and quantities consumed of three different goods from 2010−2012.

	2010		2011		2012
Good	Price ($)	Quantity	Price ($)	Quantity	Price ($)	Quantity
A	10	10	15	8	20	5
B	5	18	3	30	4	25
C	1	10	2	5	5	10

    

   

a. For 2010, 2011, and 2012, determine the amount that a typical consumer pays each year to purchase the quantities listed in the table above.

Instructions: Round your answers to the nearest whole number.

	2010	2011	2012
Consumer expenditure	$	$	$

Instructions: Round your answers to two decimal places.

d. Suppose we take 2010 as the base year, which implies that the market basket is fixed at 2010 consumption levels. Using 2010 consumption levels, the rate of inflation is% from 2010 to 2011, and % from 2011 to 2012.

Instructions: Round your answers to two decimal places.

e. Repeat the exercise from part d, now assuming that the base year is 2011. Using 2011 consumption levels, the rate of inflation is % from 2010 to 2011, and % from 2011 to 2012.

f. Your answers from parts d and e were different because (Click to select)income has changedthe base years have the same consumption quantitiesthe base years put different weights on the goodsprices have changed.

Answer 1

Inflation rate is calculated using the following formula: CPICurrentï?a CPIBcela Rate of inflation- CPIgcelear CPI is calculated as Cost of market basket in the current vear Cost of market basket in the base vear CPI- x100 Cost of market basket can be calculated by multiplying the price and quantity of different goods and summing them up for the given vear. Using the above formulas, as the base year is given to be 2011, CPI from 2010 to 2011 - Cost of market basket in the year 201o x100 Cost of market basket in the year 2011 (Base quantity of good A x Current price of good A)+ (Base quantity of good B x Current price of good B)+ (Base quantity of good C x Current price of good C) x100 (Base quan tity of good A x Base price of good A)+ (Base quantity of good B x Base price of good B)+ (Base quantity of good C x Base price of good C) (8x10)+ (30x5)+(5x1)x100 (8x15)+(30x3)+(5x2) 135 220 -ー×100 -61.36%

CPI from 2011 to 2012- Cost of market basket in the year 2012 x100 Cost of market basket in the year 2011 (Base quantity of good A x Current price of good A)+ (Base quantity of good B x Current price of good B)+ (Base quantity of good C x Current price of good C) x100 (Base quantity of good A x Base price of good A)+ (Base quantity of good B x Base price of good B)+ (Base quantity of good C x Base price of good C) (8x20)+(30x4)+(5x5)x100 (8x15)+(30x3)+(5x2) 305 X100 220 138.64% Now to calculate the inflation rate, The inflation rate from 2010 to 2011 is Inflation from 2010 to 201l- 2011 CPI2010 100-61.36 61.36 62.98%) The inflation rate from 2011 to 2012 is Inflation from 2011to2012 2012 2011 CPI 2011 138.64-100 100 138.64%

The answers in the parts d and e differ because the base years put different weights on the goods.