You know that a candy bar cost five cents in 1962. You also know the CPI for 1962 and the CPI for today. Which of the following would you use to compute the price of the candy bar in today's prices?

Question

Quizplus · Accepted Answer

To compute the price of the candy bar in today's prices, we need to adjust the price for inflation using the CPI. We know that the candy bar cost five cents in 1962, so the only variable that needs to be adjusted is the CPI. We can use the formula:

Price in today's dollars = Price in base year dollars x (CPI in today's year / CPI in base year)

Substituting the values given in the question, we get:

Price in today's dollars = 5 cents x (CPI today / CPI 1962)

Therefore, the best choice is option C. Option A is incorrect because it divides the 1962 CPI by the current CPI, which would give a value less than 1 and make the candy bar seem more expensive than it actually is. Option B is incorrect because it uses the difference in CPIs instead of the ratio of CPIs, which would also lead to an incorrect result. Option D is incorrect because it subtracts the 1962 CPI from the current CPI without applying the ratio formula stated above.

You Know That a Candy Bar Cost Five Cents in 1962