Question

1. Calculating inflation using a simple price index 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. Perform these same calculations for 2011 and 2012, and enter the results in the following table 2010 2012 Price Cost (Dollars) Cost 2011 Cost ) (Dollars) Price (Delta Price (Dollaro) Quantity in Basket (Dollars) (Dollars) Notebooks Calculators Large coffees Energy drinks Textbooks Total cost Price index Suppose the base year for this price index is 2010 In the last row of the table, calculate and enter the value of the CSP for the remaining years. Between 2010 and 2011, the CSP increased by Between 2011 and 2012, the CSP increased by

Answer 1

Solution:-

Items	Quantity	2010	2011	2012
Price	Cost	Price	Cost	Price	Cost
Note Book	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	5	5	1575	5	1890	5	2079
Price Index	5	2	100	5	120	5	132

Calculate CSPI in 2011 -

CSPI = (Cost of basket in 2015/Cost of basket in 2014) * 100

CSPI = ($1890 / $1575) * 100

CSPI = 120

Calculate CSPI in 2012 -

CSPI = (Cost of basket in 2016/Cost of basket in 2014) * 100

CSPI = ($2079 / $1575) * 100

CSPI = 132

Increase in CSPI between 2010 and 2011 = [(120 - 100) / 100] * 100 = 20%

Answer to blank 1: 20%       

Increase in CSPI between 2015 and 2016 = [(132 - 120) / 120] * 100 = 10%

Answer to blank 1: 10%       

Ans:-

· A new mobile device for personal computing became available for purchase.

· As the price of calculators rose, fewer students decided to buy them, opting instead to use the free calculators in their cell phones or on their computers.

· Energy drinks became increasingly popular on college campuses between 2010 and 2012 due to significant improvements in flavor, but this quality change is hard to measure.