Covering Chapter 18 & 19 (Maximum possible points: 50) Due: Day 7 (11:59pm) Calc
ID: 1133307 • Letter: C
Question
Covering Chapter 18 & 19 (Maximum possible points: 50) Due: Day 7 (11:59pm) Calculate a price index for 2015, 2016, and 2017 using the following information about prices. Let the market basket consist of the price of one pizza pie, three sodas, and five caffe lattes. Let the year 2015 be the base year (with an index value of 100). See the instruction video, "inflation.ppsm Year Price of a pizza Price of a Soda Price of a Caffe Latte 2015 $9.00 2016 $9.50 2017 $10.0 $0.50 $0.53 $0.65 $2.00 $2.24 $2.90 A. Calculate the price index for each year (Show mathematical steps in detail to receive full credits) B. How much inflation occurred between 2015 and 2016? Between 2015 and 2017? In other words, what is the change in the price index between 2015 vs 2016 and 2015 vs 2017? (Show mathematical steps in detail to receive full credits)Explanation / Answer
(A) Price Index, year N = (Cost of basket, year N / Cost of basket, base year) x 100
Cost of basket, 2015 ($) = 1 x 9 + 3 x 0.5 + 5 x 2 = 9 + 1.5 + 10 = 20.5
Cost of basket, 2016 ($) = 1 x 9.5 + 3 x 0.53 + 5 x 2.24 = 9.5 + 1.59 + 11.2 = 22.29
Cost of basket, 2017 ($) = 1 x 10 + 3 x 0.65 + 5 x 2.9 = 10 + 1.95 + 14.5 = 26.45
Therefore,
Price Index, 2015 (Base year) = 100 [Since Base year price index always equals 100]
Price Index, 2016 = (Cost of basket, 2016 / Cost of basket, 2015) x 100 = ($22.29/$20.5) x 100
= 108.73
Price Index, 2017 = (Cost of basket, 2017 / Cost of basket, 2015) x 100 = ($26.45/$20.5) x 100
= 129.02
(B)
Inflation, 2015-2016 = (108.73/100) - 1 = 1.0873 - 1 = 0.0873 = 8.73%
Inflation, 2016-17 = (129.02/108.73) - 1 = 1.1866 - 1 = 0.1866 = 18.66%