Suppose you spend 30 per cent of your budget on food, 20 per cent on transport, 40 per cent on rent, 5 per cent on entertainment, and 5 per cent on miscellaneous items. If the price of all parts of your budget rises equally in percentage terms, which would have the most weight on your cost of living increase? (Assume you calculate your index the same way the CPI is calculated.)

Question

Quizplus · Accepted Answer

Since rent makes up the largest proportion of the budget at 40%, any increase in rent would have the most weight on the cost of living increase. Even if all parts of the budget increase equally in percentage terms, the larger percentage of rent in the budget means that it will still have a greater impact on the overall cost of living.

Suppose You Spend 30 Per Cent of Your Budget on Food