Consumer Price Index Calculate a new consumer price index for the above data. As

Question

Consumer Price Index

Calculate a new consumer price index for the above data. Assume that current-year prices of Twinkies, Fuel oil, and cable TV are $0.95/pkg, $1.25/gal, and $15/mo, respectively.

Calculate the current year's cost of the market basket and the value of the current year's price index.

What is the year's percentage change in the price level compared to the base year?

Product (1) Qty in Market Basket (2) Prices in Base Yr (3) Cost of Basket in Base Yr (3) = (1) x (2) (4)Prices in Current Yr (5) Cost of Basket in Current Yr   (5) = (1) x (4) Twinkies 365 Pkgs $089/pkg $324.85 $0.79 $288.35 Fuel Oil 500 Gallons $1.00/gal $500.00 $1.50 $750.00 Cable TV 12 months $30.00/mo $360.00 $30.00 $360.00 Total $1,184.85 $1,398.35

Explanation / Answer

1. consumer price index (CPI)= (cost of CPI market basket at current period prices/ cost of CPI market basket at base period prices) * 100

                                         = (1398.35/ 1184.85)* 100 = 118.02

2.

cost of basket in current year (5)= (1) * (4)

current year Consumer price index= (1151.75/ 1184.85)*100= 91.21

CPI value of base year is always equal to 100. In this case,

base year CPI= (1184.85/1184.85)*100= 100

percentage change in CPI={( 91.21- 100)/ 100 }* 100= - 8.79 %

product qty in market basket (1) prices in base year (2) cost of basket in base year (3)= (1)* (2) prices in current year (4)

cost of basket in current year (5)= (1) * (4)

Twinkies 365 pkg $0.89/pkg $324.85 $0.95/pkg $346.75 fuel oil 500 gallons $1.00/gal $500 $1.25/gal $625 cable TV 12 months $30/m $360 $ 15/m $180 Total $1184.85 $1151.75

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