In Felixania, cat food constitutes 45 percent of the typical basket of goods for
ID: 1126992 • Letter: I
Question
In Felixania, cat food constitutes 45 percent of the typical basket of goods for a typical consumer, dog food constitutes 3 percent, and all other goods constitute the remaining 52 percent. Assume the price of cat food rises by 4 percent, the price of dog food falls by 10 percent, and prices remain constant for all other goods. Based on the information given, we can definitely say because the price of dog food fell by more than the price of cat food rose, the consumer price index (CPI) must have decreased. 0 the consumer price index (CPI) in Felixania is more than in the previous year. if consumers get a 4 percent pay raise, they are worse off in terms of their real income compared to inflation as measured by the Felixanian consumer price index (CPI). because cat food is a luxury (as is dog food), consumers are certainly no worse off in terms of their real wages as measured by the Felixanian consumer price index (CPI). menu costs have decreased.Explanation / Answer
The consumer price index(CPI) in Flexania is more than in the previous year.
if we assume, there are 100 units of food exist in the economy and divided them accordingly related to the percentage of the respective foods.
% increase for all the groups
% increase for all the groups = 160/100 = 1.6
CPI = 100 + 1.6 = 101.6
This indicates that the CPI in Flexania is more than in the previous year.
Group % increase in price (i) Weight (w) iw Cat Food 4 45 180 Dog food -10 3 -30 All other goods 0 48 0 Total 100 160