Consider an economy with only two goods: bread and wine. In 1982, the typical family bought 4 loaves of bread at 50¢ per loaf and 2 bottles of wine for $9 per bottle. In Year X, bread cost 75¢ per loaf and wine cost $10 per bottle. The CPI for Year X (using a 1982 base year) is:

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valetta valetta · Answer 1 · 2019-11-15T08:06:46+01:00

Answer:

115

Explanation:

Data provided in the question:

Number of breads bought = 4

Number of wine bottles bought = 2

Cost of bread in year 1982 = 50 cents = $0.5

Cost of wine bottle in year 1982 = $9

Cost of bread in year X = 75 cents = $0.75

Cost of wine bottle in year X = $10

Now,

The CPI is calculated as:

CPI = [tex]\frac{\textup{Cost of basket in the given year (i.e year X)}}{\textup{Cost of basket in the base year (i.e 1982)}}\times100[/tex]

thus,

CPI for year X = [tex]\frac{\$0.75\times4+\$10\times2}{\$0.5\times4+\$9\times2}\times100[/tex]

or

CPI for year X = [tex]\frac{\$23}{\$20}\times100[/tex]

or

CPI for year X = 1.15 × 100 = 115