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 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. Quantity in Basket 2017 2018 2019 Price Cost Price Cost Price Cost (Dollars) (Dollars) (Dollars) (Dollars) (Dollars) (Dollars) Notebooks 10 2 20 1 3 Calculators 1 50 50 54 75 Large coffees 200 1 200 1 1 Energy drinks 100 2 200 3 4 Textbooks 10 100 1,000 120 150 Total cost 1,470 Price index 100 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. a. Professors required each student to buy 10 textbooks, regardless of the price. b. Energy drinks became increasingly popular on college campuses between 2017 and 2019 due to significant improvements in flavor, but this quality change is hard to measure. c. 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. d. A new mobile device for personal computing became available for purchase.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter22: Inflation

Section: Chapter Questions

Problem 34P: The total price of purchasing a basket of goods in the United Kingdom over four years is: year...

See similar textbooks

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 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.

	Quantity in Basket	2017	2018	2019
Price	Cost	Price	Cost	Price	Cost
(Dollars)	(Dollars)	(Dollars)	(Dollars)	(Dollars)	(Dollars)
Notebooks	10	2	20	1		3
Calculators	1	50	50	54		75
Large coffees	200	1	200	1		1
Energy drinks	100	2	200	3		4
Textbooks	10	100	1,000	120		150
Total cost			1,470
Price index			100

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.

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

b. Energy drinks became increasingly popular on college campuses between 2017 and 2019 due to significant improvements in flavor, but this quality change is hard to measure.

c. 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.

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

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 2 steps with 1 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions