Question

QUESTION 25
The CPI basket contains 400 oranges and 800 pens. In the base year, the price of an orange is $1.00 and the price of a pen is
$0.75. This year, urban consumers each buy 300 oranges at $2.00 each and 850 pens at $1.00 each. The CPI this year is

Answer 1

Answer:

160

Explanation:

Given: CPI basket contain 400 oranges and 800 pens.

          In the base year, price of oranges is $1 and pen is $0.75.

          This year urban customer buy oranges at $2 each and pens at $1 each.

To find consumer price index (CPI), we need to check price of basket in current year and base year.

∴ Current year´s price for 400 oranges and 800 pens = $400\times 2= \ 800\\800\times 1= \ 800$

Now, adding the price to get cost of basket

Cost of basket in current year= $800+800= \ 1600$

Base year´s price for 400 oranges and 800 pens= $400\times 1= \ 400\\800\times 0.75= \ 600$

Cost of basket in base year= $400+600 = \ 1000$

Next, calculating the CPI of this year

Formula; CPI= $\frac{\textrm{ Cost of basket in current year}}{\textrm{ cost of basket in the base year}} \times 100$

CPI for the year = $\frac{1600}{1000} \times 100 = 160$

∴ Consumer price index (CPI) = 160.