Principles Of Economics, Student Value Edition
12th Edition
ISBN: 9780134079288
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: Prentice Hall
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Question
Chapter 20, Problem 1.6P
To determine
The rise in prices and consumer welfare.
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In year 1, the price of health care is $1, while the price of other goods is $2. At these prices, you demand 30 units of health care and 35 units of other goods.
In year 2, your utility function and your income do not change, but prices do. Health care becomes more expensive at $1.50, while other goods become cheaper at $1.50. At these prices, you demand 20 units of health care.
(a) Assuming you spend all your income in year 2, how many units of other goods do you buy?
C = 70/1.5
(b) Use this budget constraint to calculate the Laspeyres price index; that is, the amount of money you need to buy the Year 1 bundle in Year 2, divided by the money you paid for it in Year 1.
Which of the following best describes health care expenditure based on the level of education? Medical expenditure seems to be lowest for the more educated. Medical expenditure seems to be lowest for the less educated. Medical expenditure seems to be unrelated to the level of education. Medical expenditure seems to be highest among highschool students
What is real GPD? Why do economists prefer to use that as a measurement over regular GPD? Explain.
Chapter 20 Solutions
Principles Of Economics, Student Value Edition
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- The Consumer Price Index measures the overall level of prices faced by:arrow_forwardExplain how the percentage of undernourished people can have decreased slightly between 2000–2002 and 2005–2007, while the absolute number of undernourished people increased slightly during the same periodarrow_forwardIn the city of Paradise, government survey takers determine that typical family expenditures each month in the year designated as the base year are as follows: 20 pizzas at $10 each Rent of apartment, $600 per month Gasoline and car maintenance, $100 Phone service, $50 In the year following the base year, the survey taker determine that pizzas have risen to $11 each, apartment rent is $640, gasoline and maintenance has risen to $120, and phone service has dropped in price to $40. a). Find the CPI in the subsequent year and the rate of inflation between the base year and the subsequent year. b). The family's nominal income rose by 5% between the base year and the subsequent year. Is the family worse off or better off in terms of what its income is about to buy?arrow_forward
- Three problems that make the consumer price index an imperfect measure of the cost of living arearrow_forwardYou can use a price index to study the buying habits of individuals? True or falsearrow_forwardOut of 571 employees interviewed, 17% said they thought about work while on vacation. How many people thought about work?arrow_forward
- Suppose the price level reflects the number of dollars needed to buy a basket of goods containing one can of soda, one bag of chips, and one comic book. In year one, the basket costs $7.00. In year two, the price of the same basket is $6.00. From year one to year two, there is at an annual rate of . In year one, $21.00 will buy baskets, and in year two, $21.00 will buy baskets. This example illustrates that, as the price level falls, the value of money .arrow_forwardIn an effort to analyze the effect of COVID 19 on health careexpenditure a research team in Healthystate considered 2019 to be the base year in calculating the Laspeyres Index. The following are data from 2018, 2019 and 2020 Quantity 2018 Prices 2018 Quantity 2019 Prices 2019 Quantity 2020 Prices 2020 Oxygen Supply 150 100 170 110 2500 180 Pharmaceutical Products 500 270 750 250 1500 210 Intensive Care 50 2170 50 2200 500 2300 Elective surgeries 150 1870 130 2100 5 3500 Considering the base year as year "0" a- calculate the Laspeyres index between 2018 and 2019 b- Calculate the Laspeyres index between 2019 and 2020 c- John claimed that since 2020 is an important year (since most of it was COVID 19 issues) we need to consider it as the base year. Calculate the Laspeyres index between 2019 and 2020. d- Why would there be a difference between the index in part c and the one in part b?arrow_forwardAssume that the government decides to count discouraged workers in the official statistics. Which of the following would follow from that decision? A. The number of employed would rise B. The number of unemployed would rise C. The labor force participation rate would fall D. Nothing would happen because discouraged workers are already counted in the official statisticsarrow_forward
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