Subpart (a):
Measuring percentage change in price , CPI and Inflation rate.
Subpart (a):
Explanation of Solution
The percentage change in price of the good is calculated by using the following formula:
Substitute respective values in equation (1) to calculate the percentage price change for the tennis ball.
The percentage change in price for Tennis ball is 0.
Substitute respective values in equation (1) to calculate the percentage price change for the golf ball.
The percentage change in price for golf ball is 0.
Substitute respective values in equation (1) to calculate the percentage price change for the galorade.
The percentage change in price of golf balls is 50%.
The percentage change in price of bottle of gatorade is 100%.
Concept Introduction:
Consumer Price index (CPI): It is a measure that examines the changes in price levels of a basket of consumer goods and services which includes food and energy prices.
Inflation rate: It is a measure of the percentage change in the price index from the preceding period.
Subpart (b):
Measuring percentage change in price, CPI and Inflation rate.
Subpart (b):
Explanation of Solution
Thebase year is 2017. The consumer price index (CPI) can be calculated by using the following formula.
Substitute the respective values in equation (1) to calculate the CPI for the year 2017.
CPI in the year 2017 is 100.
Substitute the respective values in equation (1) to calculate the CPI for the year 2018.
CPI in the year 2018 is 150.
The overall change in price using CPI is calculated as follows:
Thus, the overall change in price is 50%.
Concept Introduction:
Consumer Price index (CPI): It is a measure that examines the changes in price levels of a basket of consumer goods and services which includes food and energy prices.
Inflation rate: It is a measure of the percentage change in the price index from the preceding period.
Subpart (c):
Measuring percentage change in price, CPI and Inflation rate.
Subpart (c):
Explanation of Solution
When the bottle of Gatorade increased in size from 2017 to2018, its value would be greater than before. As a result, this would lower the estimation of inflation rate.
Concept Introduction:
Consumer Price index (CPI): It is a measure that examines the changes in price levels of a basket of consumer goods and services which includes food and energy prices.
Inflation rate: It is a measure of the percentage change in the price index from the preceding period.
Subpart (d):
Measuring percentage change in price, CPI and Inflation rate.
Subpart (d):
Explanation of Solution
More flavors enhance consumers’ well-being which would result in change in quality and thus would lower the estimate of the inflation rate.
Concept Introduction:
Consumer Price index (CPI): It is a measure that examines the changes in price levels of a basket of consumer goods and services which includes food and energy prices.
Inflation rate: It is a measure of the percentage change in the price index from the preceding period.
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Chapter 11 Solutions
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Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
