Consider an economy that produces and consumes only three types of fruit: apples
ID: 1135050 • Letter: C
Question
Consider an economy that produces and consumes only three types of fruit: apples, oranges and bananas. In 2009 and 2010, the production/consumption and price data were as follows: 2009: Fruit Quantity Price Apples 3000 $2 per unit Bananas 6000 $3 per unit Oranges 8000 $4 per unit 2010: Fruit Quantity Price Apples 4000 $3 per unit Bananas 14000 $2 per unit Oranges 8000 $5 per unit Using 2009 as the reference base year and 2010 as the expenditure base year, the CPI equals 1 in 2009 and 1.089 in 2010 1.089 in 2009 and 1 in 2010 0.976 in 2009 and 1 in 2010 O 1 in 2009 and 0.976 in 2010Explanation / Answer
Answer
The correct answer is (d) 1 in 2009 and 0.976 in 2010
Reference Base Year is 2009 Hence lets have CPI of 2009 be equal to 1. Year 2010 is the expenditure base year hence Lets calculate CPI of 2010 using 2010 Goods Basket.
Total Value of goods in year 2010 in terms of 2009 Year Prices = 4000*2 + 14000*3 + 8000*4
= 82000
Total Value of goods in year 2010 in terms of 2010 Year Prices = 4000*3 + 14000*2 + 8000*5
= 80000
Hence CPI in 2010 is Total Value of goods in year 2010 in terms of 2010 Year Prices/Total Value of goods in year 2010 in terms of 2009 Year Prices = 80000/82000 = 0.976
Hence CPI in Year 20019 is 1 and CPI in year 2010 is 0.976
Hence, The correct answer is (d) 1 in 2009 and 0.976 in 2010.