Consider an economy that produces and consumes only three types of fruit: apples
ID: 1135051 • 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 Let us work towards computing CPI for the two years, using 2009 as the reference base year and 2010 as the expenditure base year. First, we need to compute the cost of the consumers basket in different years A. The cost of the basket in the reference base year is B. The cost of the basket in 2009 is C. The cost of the basket in 2010 is dollars thousand dollars dollarsExplanation / Answer
Cost of the basket is calculated by summing the weighted price of the products.
In year 2009, Apple: Bananas: Oranges :: 3:6:8
This is the proportional weight assigned to the products in the basket.
Thus cost of basket = Weight assigned* price per unit
cost of basket = (3*3 + 2*6 + 5*8)/17 = $3.58
b. Similarly cost of basket in 2009 is $3.58
c. Similarly cost of basket in 2010:
In year 2009, Apple: Bananas: Oranges :: 4:14:8
This is the proportional weight assigned to the products in the basket.
Thus cost of basket = Weight assigned* price per unit
cost of basket = (3*4 + 2*14 + 5*8)/26 = $3.07