Question

2. The typical household purchases two goods: chocolates and candy corn. Each month, the household purchases 7 bags of chocolate, while also purchasing 2 bags of candy com. In November 2018, the chocolate cost $1.85 per bag and the candy com cost $4.75 per bag. In November 2019, the chocolate cost $2.50 per bag and the candy corn increased in price to $5.15 per bag. a. Using these values, solve for the CPI, assuming that November 2018 is the base month. b. Solve for the CPI growth rate between the November 2018 and November 2019.

Answer 1

As per the question the typical household purchases two goods as 7 bags of chocolates and 2 bags of candy corn
Year	Price of Chocolates per bags in $	Quantity of Chocolates in bags	Price of Candy corn per bags in $	Quantity of Candy corn in bags	Cost of Chocolates in $ = Price of Chocolates per bags X Quantity of Chocolates in bags	cost of Candy corn in $ = Price of Candy corn per bags X Quantity of Candy corn in bags	Cost of Basket in $ = cost of Chocolates + cost of Candy corn
(November) 2018	1.85	7	4.75	2	12.95	9.50	22.45
(November) 2019	2.50	7	5.15	2	17.50	10.30	27.80
(A) as per the question the November 2018 is the base year so the CPI of November 2018 = 100%
CPI of November 2019 = (Cost of Basket in November 2019/Cost of Basket in November 2018)x100 = (27.80/22.45)x100 = 123.83%
CPI of November 2019= 123.83%
(B) CPI Growth Rate = {(CPI of November 2019 - CPI of November 2018)/CPI of November 2018}x100
CPI Growth Rate = {(123.83 - 100)/100}x100 = 23.83%
CPI Growth Rate between November 2018 and November 2019 is 23.83%