$$\begin{array} { | c | c | c | }
\hline \text { Year } & \text { Units of Output } & \text { Price Per Unit } \
\hline 1 & 20 & \$ 4 \
\hline 2 & 25 & 4 \
\hline 3 & 30 & 6 \
\hline
\end{array}$$ Assume an economy that is producing only one product. Output and price data for a three-year period are shown in the table. If year 2 is chosen as the base year, in years 1 and 3 the price index
Values are
A) 4 and 6, respectively.
B) 6 and 4, respectively.
C) 120 and 100, respectively.
D) 100 and 150, respectively.

Question

$$\begin{array} { | c | c | c | } 
\hline \text { Year } & \text { Units of Output } & \text { Price Per Unit } \
\hline 1 & 20 & \$ 4 \
\hline 2 & 25 & 4 \
\hline 3 & 30 & 6 \
\hline
\end{array}$$ Assume an economy that is producing only one product. Output and price data for a three-year period are shown in the table. If year 2 is chosen as the base year, in years 1 and 3 the price index
Values are
A) 4 and 6, respectively.
B) 6 and 4, respectively.
C) 120 and 100, respectively.
D) 100 and 150, respectively.

Quizplus · Accepted Answer

The price index is calculated by taking the price of the goods in the current year, dividing it by the price of goods in the base year, and then multiplying by 100. For year 1, the price index is $(\$4 / \$4) \times 100 = 100$. For year 3, it is $(\$6 / \$4) \times 100 = 150$.

Assume an Economy That Is Producing Only One Product