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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

Change the current-year prices in Exhibit 1 to $1 for pens, $28 for shirts, and $32 for a pair of shoes. Based on these prices, what is the CPI for the current year?

To determine

The CPI in the current year.

Explanation

It is given that the market basket contains quantity of pens (QP) as 10, quantity of shirts (QS) as 5, and quantity of pair of shoes (QH) as 3. The current year price of pens (PP) is $1, the current year price of shirts (PS) is $28, and the current year price of a pair of shoes (PH) is $32. The base year price of pens is $0.20, the base year price of shirts is $7, and the base year price of a pair of shoes is $10.

The total dollar expenditure can be calculated as the weighted average of price and quantity of the three goods. The total dollar expenditure in the current year can be calculated by substituting the respective values in Equation (1) as follows:

Total dollar expenditureCurrent year=((PPCurrent year×QPCurrent year)+(PSCurrent year×QSCurrent year)+(PHCurrent year×QHCurrent year)) (1)

Total dollar expenditureCurrent year=(1×10)+(28×5)+(32×3)=10+140+96=246

Thus, the total dollar expenditure in the current year is $246

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