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 inflation rate in 2007 was 16 percent,then how much did a magazine cost in 2007?

Question

Quizplus · Accepted Answer

To calculate the inflation rate, we need to compare the cost of the fixed basket in the two years.

In 2006, the cost of the basket was: 
(20 sandwiches x $4) + (30 magazines x $2) = $80 + $60 = $140

In 2007, the cost of the basket was: 
(20 sandwiches x $5) + (30 magazines x $m) = $100 + 30m

We know that the inflation rate is 16%, which means the cost of the basket in 2007 was 116% of the cost in 2006.

So: 
$100 + 30m = 1.16($140) 
$100 + 30m = $162.40 
30m = $62.40 
m = $2.08

Therefore, a magazine cost $2.08 in 2007. The answer is B.

In an Imaginary Economy,consumers Buy Only Sandwiches and Magazines