Table 20-2

-Refer to Table 20-2.Assume the market basket for the consumer price index has two products bread and milk with the following values in 2006 and 2011 for price and quantity: The Consumer Price Index for 2011 equals
A) 118.
B) 116.
C) 86.
D) 85.

Question

Table 20-2
 
-Refer to Table 20-2.Assume the market basket for the consumer price index has two products bread and milk with the following values in 2006 and 2011 for price and quantity: The Consumer Price Index for 2011 equals
A) 118. 
B) 116. 
C) 86. 
D) 85.

Quizplus · Accepted Answer

Using the formula for calculating CPI:
CPI = (Cost of market basket in current year / Cost of market basket in base year) x 100

For bread:
2006 cost = $2.50 x 50 units = $125
2011 cost = $3.00 x 60 units = $180
Price relative = (2011 cost / 2006 cost) = 1.44

For milk:
2006 cost = $1.50 x 100 units = $150
2011 cost = $2.00 x 120 units = $240
Price relative = (2011 cost / 2006 cost) = 1.60

Weighted CPI = (1/4) x [(1.44 x 50) + (1.60 x 100)] = 58 + 80 = 138
CPI = (138 / 118) x 100 = 116.9, which rounds to 116.

Therefore, the answer is B) 116.

Table 20-2 -Refer to Table 20-2.Assume the Market Basket for the Consumer