Keep the Highest: /4 Attempts: 3. Problems and Applications Q3 Suppose that peop

ID: 2439031 • Letter: K

Question

Keep the Highest: /4 Attempts: 3. Problems and Applications Q3 Suppose that people consume only three goods, as shown in this table: Tennis Balls Golf Balls Bottles of Gatorade 2017 Price Quantity $2 200 80 100 2018 Price Quantit)y 200 80 100 Complete the following table by computing the percentage change in price for each of the three goods Tennis Balls Golf Balls Bottles of Gatorade Percentage Change Using a method similar to that used to calculate the consumer price index, the percentage change in the overall price level is True or False: If you were to learn that a bottle of Gatorade increased in size from 2017 to 2018, that information would raise your estimation of the inflation rate. True O False True or False: If you were to learn that Gatorade introduced new flavors in 2018, that would imply that the inflation rate you estimated is understated. True O False

Explanation / Answer

Solution:

Tennis Balls

Golf Balls

Bottle of Gatorade

Percentage Change

33%

50%

Working

2/3 = 0.67; 1 - 0.67 = 0.33

2/2 = 1; 1 -1 =0

2/4 = 0.5; 1-0.5 = 0.5

b) Solution 40%

Explanation:

$2*200 + $5*80 + $2*100 = 1000; 1000/1000 * 100 = 100

$3*200 + $5*80 + $4*100 = 1400; 1400/1000*100 = 140

(140-100) / 100 * 100 =40%

c) Solution: Yes

Explanation: In this scenario would expect a price change between 2017 and 2018. It would make the 40% rise in cost for Gatorade more reasonable.

d) Solution: No

Explanation: No, it will not impact the numerical value of the rate of inflation. But must be taken into account because we are not able to account for the value of new flavors to consumers, thus exclude it. However as new flavors can be considered a change in the product, these are not measurable in the calculation of the inflation rate.