Table 5-2 shows the market basket for a typical college student. Use this data to answer questions .
Table 5-2

-Refer to Table 5-2. Suppose the base year is 2008. What is the value of the price index in 2007?

Question

Table 5-2 shows the market basket for a typical college student. Use this data to answer questions .
Table 5-2
 
-Refer to Table 5-2. Suppose the base year is 2008. What is the value of the price index in 2007?

Quizplus · Accepted Answer

To calculate the price index for 2007, we need to find the cost of the market basket in 2007 and divide it by the cost of the market basket in the base year (2008), then multiply by 100. The cost of the market basket in 2007 is ($1.50 x 10) + ($2.00 x 3) + ($3.00 x 2) + ($4.00 x 1) = $32.50. The cost of the market basket in the base year (2008) is ($1.50 x 12) + ($2.00 x 4) + ($3.00 x 2) + ($4.00 x 1) = $38.50. So, the price index for 2007 is (32.50/38.50) x 100 = 84.42, which is rounded to 0.88.

Table 5-2 Shows the Market Basket for a Typical College