Consider a fictional price index, the College Student Price Index (CSPI), based

Question

Consider a fictional price index, the College Student Price Index (CSPI), based on a survey of annual purchases of a typical college student. Suppose the following table shows information on the market basket for the CSPI and the prices of each good in 2012, 2013, and 2014 2012 2013 2014 Cost of Basket Cost of Basket Cost of Basket Quantity in Basket Price Price Price Notebooks Calculators Large coffees Energy drinks Textbooks Total cost Price index 16 64 64 104 134 150 40 10 300 120 800 $1,300 100 80 85 105 The cost of each item in the basket and the total cost of the basket are shown for 2012. Perform these same calculations for 2013 and 2014 and enter the results in the table Suppose the base year for this price index is 2012. Calculate and enter the value of the CSPI for the remaining years in the last row of the table Between 2012 and 2013, the CSPI increased by Between 2013 and 2014, the CSPI increased by Which of the following, if true, would illustrate why price indexes such as the CSPI might overstate inflation in the cost of going to college? Check all that apply As the price of textbooks increased, more and more students turned to the used-book market or chose not to buy textbooks at all, instead using the copies on reserve in the library The quality and design of calculators improved dramatically from 2012 to 2014. For example, calculators made in 2014 accept memory cards, whereas those made in 2012 do not. Professors required each student to buy eight notebooks, regardless of the price

Explanation / Answer

CSPI for 2013 =1430*100/1300= 110

CSPI for 2014 = 1716*100/1300=132

between 2012 and 2013 , CSPI increased by = (new CSPI-old CSPI)*100/old CSPI= (110-100)*100/100= 10%

between 2013 and 2014 , CSPI increased by (132-110)*100/110= 20%

ans option a) as the price.....library

2013 2014 cost of basket cost of basket notebooks 16 32 calculators 104 134 large coffees 300 300 energy drinks 160 200 textbooks 850 1050 total cost 1430 1716 price index 110 132

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