Exhibit 19-5.Firms A,B,and C operate in the market for computers.Each firm's product is popular in the market and distinct from what the other firms offer.The following table shows the prices of laptops from 2005 through 2007. Refer to Exhibit 19-5.If 2005 is used as the base year,which of the following statements about the prices of these laptops is true?
A)The prices increased by about 4.8% between 2006 and 2007.
B)The prices were about 8.17% lower in 2007 than in 2005.
C)The prices increased by about 3.36% from 2005 to 2006.
D)The increase in the price of firm C's laptop outweighed the fall in the prices of the others so that the overall index for 2006 was greater than 100.

Question

Exhibit 19-5.Firms A,B,and C operate in the market for computers.Each firm's product is popular in the market and distinct from what the other firms offer.The following table shows the prices of laptops from 2005 through 2007.  Refer to Exhibit 19-5.If 2005 is used as the base year,which of the following statements about the prices of these laptops is true?
A)The prices increased by about 4.8% between 2006 and 2007. 
B)The prices were about 8.17% lower in 2007 than in 2005. 
C)The prices increased by about 3.36% from 2005 to 2006. 
D)The increase in the price of firm C's laptop outweighed the fall in the prices of the others so that the overall index for 2006 was greater than 100.

Quizplus · Accepted Answer

To calculate the price index we take the price of the three laptops in each year and divide by the price of the three laptops in 2005, then multiply by 100. Using this method, we find that the price index was 100 in 2005, 103.36 in 2006, and 91.83 in 2007. Therefore, the prices were about 8.17% lower in 2007 than in 2005.