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 CSP and the prices of each of the goods in 2017, 2018, and 2019. The cost of each item in the basket and the total cost of the basket are shown for 2017. Perform these same calculations for 2018 and 2019, and enter the results in the following table. 2017 Price Cost (Dollars) (Dollars) 2018 Price Cost (Dollars) (Dollars) 2019 Price Cost (Dollars) (Dollars) Quantity in Basket Notebooks Calculators Large coffees Energy drinks 500 100 1,200 1,900 Textbooks Total cost Price Index Suppose the base year for this price index is 2017 In the last row of the table, calculate and enter the value of the CSPI for the remaining years. Between 2017 and 2018, the CSPI increased by . Between 2018 and 2019, the CSPI increased by Which of the following, if true, would illustrate why price indexes such as the CSPI might overstate inflation in the cost of going to college? Check all that apply. Professors required each student to buy 10 textbooks, regardless of the price A new mobile device for personal computing became available for purchase. Energy drinks became increasingly popular on college campuses between 2017 and 2019 due to significant improvements in favor, but this quality change is hard to measure.

Answer 1

	Quantity in Basket	2017		2018		2019
		Price	Cost	Price	Cost	Price	Cost
		(Dollars)	(Dollars)	(Dollars)	(Dollars)	(Dollars)	(Dollars)
Notebooks	15	2	30	5	75	8	120
Calculators	1	70	70	100	100	130	130
Large coffees	250	2	500	2	500	2	500
Energy drinks	50	2	100	4	200	6	300
Textbooks	10	120	1,200	150	1500	180	1800
Total cost			1,900		2375		2850
Price index			100		125		150

Suppose the base year for this price index is 2017

Between 2017 and 2018, the CSPI increased by 125-100/100*100 = 25%

Between 2015 and 2016, the CSPI increased by.150-125/125*100 = 20%

Which of the following, if true, would illustrate why price indexes such as the CSPI might overstate:-

Everything is correct except the following statement:-

-Professors required each student to buy 10 textbooks, regardless of the price