Question

Suppose a typical Canadian consumer purchases three goods, creatively named good A, good B, and good C. The prices of these goods are listed in the table below. Good A Price in 2011 ($) 8 5 Price in 2012 ($) 14 4 2 B C 1 Instructions: Round your answers to two decimal places. a. If the typical consumer purchases two units of each good, the percentage increase in the price paid by the consumer for this basket between 2011 and 2012 is b. If the typical consumer purchases 10 units of good B and 2 units of both good A and good C, the percentage increase in the price paid by the consumer for this basket is %. c. The percentage change in price is: not dependent on the quantities of goods in the basket. determined by the relative quantities of the goods and the relative price change for those goods. is always negative. always positive.

Answer 1

a) If consumer buys two units of each good

Price in 2011 = 2(8+5+1) = 28

Price in 2012 = 2(14+4+2) = 40

Increase in price = ((40/28)-1)*100 = 42.85%

b) If 10 units of Good B and 2 units of good A and C

Price in 2011 = 2(8+1) + 10*5 = 68

Price in 2012 = 2(14+2) + 10*4 = 72

Increase in price = ((72/68)-1)*100 = 5.88%

c) Answer: B

When relative quantity of goods and relative price of goods increase than the price increase has been varied.