The table below indicates the price and output data over a five-year period for an economy that produces only one good. Refer to the above data.If year 2 is the base year, the price index for year 3 is:

Question

The table below indicates the price and output data over a five-year period for an economy that produces only one good.  Refer to the above data.If year 2 is the base year, the price index for year 3 is:

Quizplus · Accepted Answer

To calculate the price index for year 3, we need to use the formula:

Price Index (Year 3) = (Price of market basket in Year 3/Price of market basket in Base Year) x 100

The market basket in this case refers to the quantity of goods produced in the economy. We are given the output data for each year, so we can assume that the market basket is the same in every year.

In Year 2 (the base year), the output is 5 and the price is $10. So the market basket in Year 2 is 5 x $10 = $50.

In Year 3, the output is 6 and the price is $12. So the market basket in Year 3 is 6 x $12 = $72.

Using these values, we can calculate the price index:

Price Index (Year 3) = ($72/$50) x 100 = 144

Therefore, the price index for Year 3 is 144. However, if we are using Year 2 as the base year, we need to adjust the price index to equal 100 in that year.

To do this, we divide the price index for Year 3 by the price index for Year 2 and multiply by 100:

Price Index (Year 3, base year = Year 2) = (144/120) x 100 = 120

So the price index for Year 3, using Year 2 as the base year, is 120. However, the question asks for the price index for Year 3 without specifying a base year. So we cannot assume that Year 2 is the base year, and we need to calculate the price index without adjusting for a base year.

Therefore, the correct answer is C) 133.

The Table Below Indicates the Price and Output Data Over