8. Consider a market basket consisting of three goods. Use the table to answer t

Question

8. Consider a market basket consisting of three goods. Use the table to answer the following questions. Use as the base year. (round any decimals to 2 places) Price per unit in year: Units purchased 2015 2016 2017 Argon 200 $2.50 $4.00 $4.38 $3.00 $3.9 $4.20 Boron 300 Carbon 60 $3.00$3.24 $3.15 a. b. c. d. e. f. What is the cost of the market basket in 2015? What is the price index in 2015? What is the price index in 2016? What is the price index in 2018? What is the inflation rate between 2015 and 2016? What is the inflation rate between 2016 and 2017?

Explanation / Answer

a) Cost of market basket in 2015 = 200 x 2.50 + 300 x 3.00 + 60 x 3.00 = 1580.00

b) Index for 2015 (when 2015 is base year) is 100.

c) Cost of market basket in 2016 = 200 x 4.00 + 300 x 3.90 + 60 x 3.24 = 2164.4

Index for 2016 = 2164.4/1580 = 136.99 or 137

d) Information about 2018 is not given.

Cost of market basket in 2017 = 200 x 4.38 + 300 x 4.20 + 60 x 3.15 = 2325

Index for 2017 = 2325/1580 = 147.15

e) Inflation 2015 - 16 = (137 - 100)/100 = 37%

f) Inflation 2016 - 17 = (147.15 - 137)/137 = 7.4%

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