307393 Mind I. Calculating inflation using a simple price index Consider a fotio

Question

307393 Mind I. Calculating inflation using a simple price index Consider a fotional proe ndex, the College Student Pice Index (CSP, b sed on atmodetlege dudents amul purchases, a op table showe information on the market backet for the CSPI and the prices of each of the goods in 2010, 2011, and 2012 The cost of each item the basket and the total cost of the basket are shown for 2010. hitan Price Index (csPE), based on a typical college student's annual purchases. Suppose the following Perform these same calcuiations for 2011 and 2012, and enter the results in the following table. 2010 2011 Cost Price Cost Quantity in Basket (Dollars) (Dollars) (Dollars) (Dollars) (Dollars) (Doflars) 15 15 30 Notebooks Calculators Large coffees Energy drinks Textbooks Total cost Price index 7070100 ] 130 250 50 10 500 100 1,200 1,900 100 120 150 180 Suppose the base year for this price index is 2010.

Explanation / Answer

5*15 = 75

100*1 = 100

2*250 = 500

4*50 = 200

150*10 = 1500

Total =2375

CSPI increased by 2375/1900 = 125, CSPI increased by 25% compared to the base year.

Year 2012:

Similarly multiply price and quantity in 2012 = 2850

CSPI increased by 2850/1900 = 150. CSPI increased by 50% compared to the base year.

2) Price increase due to technology advancement or product improvement should not be considered inflation. Options C & D are the examples of technology and product improvement.

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