The price of a gallon of gasoline was $2.01 in May 2004 compared to 39 cents in 1973. However, the Consumer Price Index was 44.4 in 1973 compared to 189.1 in May 2004 (1980 − 1984 = 100). In terms of the purchasing power of the dollar in 2004, the 1973 price of gasoline was
A) $0.39.
B) $0.44.
C) $1.66.
D) $2.15.

Question

Quizplus · Accepted Answer

To compare the prices of gasoline in 1973 and 2004 in terms of purchasing power, we need to adjust for inflation. We can use the Consumer Price Index (CPI) to do this. In 1973, the CPI was 44.4, and in May 2004, it was 189.1. To find the 1973 price in 2004 dollars, we can use the formula:

1973 price in 2004 dollars = 1973 price x (2004 CPI/1973 CPI)

1973 price = $0.39 
2004 CPI/1973 CPI = 189.1/44.4 = 4.256 
1973 price in 2004 dollars = $0.39 x 4.256 = $1.65984

Therefore, the 1973 price of gasoline in terms of purchasing power in 2004 was approximately $1.66, which is closest to option C.

The Price of a Gallon of Gasoline Was $2