A Consumer Expenditure Survey in the city of Firestorm shows that people buy onl

Question

A Consumer Expenditure Survey in the city of Firestorm shows that people buy only firecrackers and bandages. s AConsumer Expenditure Survey in 2016 shows that the average household spent $216 on firecrackers and $18 on bandages. In 2016, the reference base year, the price of a firecracker was $6, and the price of bandages was $2 a pack. In the current year, 2017, firecrackers are $5 each and bandages are $3 a pack Calculate the CPI market basket and the percentage of a household's budget spent on firecrackers in the base year. The CPI market basket is The percentage of a household's budget spent on firecrackers in the base year is percent. ) and >>Answer to 1 decimal place.

Explanation / Answer

Answer : CPI of market basket for current period (2017)

CPI = Value of market in current period/ Value of market in base year *100

CPI = 207/234*100 = 88.4615

Price of current year Quantity Value of market basket

$5 36 $180

$3 9 $27

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$207

The CPI of market basket is dollar worth of firecrackers and dollar worth of bandages because in CPI we have to calculate changes in the price level where as quantity demanded by consumer remain fixed at different period of time.

% of household spend on the firecrackers = 216/234*100 = 92.307%

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