Assume that there are three types of commodities (A,B and C)that are consumed at the following base-year quantities and prices,as shown in the table below: What is the price index at the end of 2008?

Question

Assume that there are three types of commodities (A,B and C)that are consumed at the following base-year quantities and prices,as shown in the table below:  What is the price index at the end of 2008?

Quizplus · Accepted Answer

To calculate the price index, we need to find the cost of the bundle of commodities in the current year (2008) and divide it by the cost of the same bundle in the base year (2000) and multiply by 100.

The cost of the bundle in 2000 = (40 x 1) + (50 x 2) + (10 x 4) = 140
The cost of the bundle in 2008 = (30 x 2) + (60 x 4) + (20 x 6) = 460

Price index = (460/140) x 100 = 328.57

Therefore, the correct answer is C) 1.0461538.

Assume That There Are Three Types of Commodities (A,B and C)that