Question

2. Consumer Price Index and Real Price Index: Over a four-year period, the prices of mangoes PM (in dollars) and the Consumer Price Index (CPI) are given below: Year CPI Price of Mangoes (PM) 1991 : cpi=94 , p=14 ; 1992: cpi=100 , p=15 ; 1993: cpi= 105 , p=16 ; 1994: cpi= 115 , p=17

2.1.Which year is the base year for CPI? Use this same base year for mangoes. 2.2.Calculate the nominal price index for mangoes. 2.3.Calculate the real price index for mangoes. 2.4.Have mangoes been more or less expensive compared to the typical goods consumers buy as measured by the CPI? Explain

Answer 1

1) 1992 is the the base year for CPI because CPI equals 100

2)

Year	CPI	Price	Nominal Price	Nominal PI - Mango
1991	94	14	13.16	93.33
1992	100	15	15.00	100.00
1993	105	16	16.80	106.67
1994	115	17	19.55	113.33

Working:

Year	CPI	Price	CPI current year/ CPI base year *100	Price/ Price base year
1991	94	14	14*94/100 = 13.16	14/15*100 = 93.33
1992	100	15	15*100/100 = 16	15/15*100 = 100
1993	105	16	16*105/100 = 16.8	16/15*100 = 106.67
1994	115	17	17*115/100 = 19.55	17/15*100 = 113.33

　

3)

Year	CPI	Price	Real PI
1991	94	14	99.28
1992	100	15	100.00
1993	105	16	101.59
1994	115	17	98.55

Working:

Year	CPI	Price	Real PI
1991	94	14	93.33*100/94 = 99.28
1992	100	15	100/100*100 = 100
1993	105	16	106.67 * 100/105 = 101.59
1994	115	17	113.33 * 100 /115 = 98.55

　

4) The abobe figure reglects that the average CPI exceeds the average real price index. We make a comparison of the the cost of living with the cost of mangos