Taking 1980 as the base year, compute the simple index for the price of natural

ID: 3439476 • Letter: T

Question

Taking 1980 as the base year, compute the simple index for the price of natural gas in 1967, 1975, 1985, and 1995, 2005, and 2014 using the data in the table below:

U.S. Price of Natural Gas Sold to Commercial Consumers (Dollars per Thousand Cubic Feet)

Decade

Year-0

Year-1

Year-2

Year-3

Year-4

Year-5

Year-6

Year-7

Year-8

Year-9

1960's

0.74

0.73

0.74

1970's

0.77

0.82

0.88

0.94

1.07

1.35

1.64

2.04

2.23

2.73

1980's

3.39

4.00

4.82

5.59

5.55

5.50

5.08

4.77

4.63

4.74

1990's

4.83

4.81

4.88

5.22

5.44

5.05

5.40

5.80

5.48

5.33

2000's

6.59

8.43

6.63

8.40

9.43

11.34

12.00

11.34

12.23

10.06

2010's

9.47

8.91

8.10

8.08

8.90

U.S. Price of Natural Gas Sold to Commercial Consumers (Dollars per Thousand Cubic Feet)

Explanation / Answer

The price of natural gas in 1980 (the base year) is 3.39.

The price inde of the t th year with respect to the base year 0 is defined as

It0 = (pt)/(p0) where pt is the price of natural gas in t th year.

The values of price indices are shown in the table below

Year(t)

It0

1967

0.21829

1975

0.39823

1985

1.62242

1995

1.48967

2005

3.34513

2014

2.62537