In an imaginary economy,consumers buy only sandwiches and magazines.The fixed basket consists of 20 sandwiches and 30 magazines.In 2006,a sandwich cost $4 and a magazine cost $2.In 2007,a sandwich cost $5.The base year is 2006.If the consumer price index in 2007 was 125,then how much did a magazine cost in 2007?

Question

Quizplus · Accepted Answer

To calculate the consumer price index (CPI), we need to find the cost of the fixed basket of goods in both years.

In 2006: 
20 sandwiches x $4/sandwich = $80 
30 magazines x $2/magazine = $60 
Total cost of basket = $140

In 2007: 
20 sandwiches x $5/sandwich = $100 
Cost increase of sandwiches = ($100 - $80)/$80 x 100% = 25%

To find out the cost of the magazines in 2007, we can use the CPI formula:

CPI = (Cost of fixed basket in current year / Cost of fixed basket in base year) x 100

125 = (Cost of sandwiches in 2007 / Cost of sandwiches in 2006) x 125 
125 = (1.25 / x) x 125 
x = $2.50

Therefore, the cost of a magazine in 2007 was $2.50.

The answer is (C).

In an Imaginary Economy,consumers Buy Only Sandwiches and Magazines