The consumer price index for Planet Econ consists of only two items: books and hamburgers. In 2000, the base year, the typical consumer purchased 10 books for $25 each and 25 hamburgers for $2 each. In 2005, the typical consumer purchased 15 books for $30 each and 30 hamburgers for $3 each. The consumer price index for 2005 on Planet Econ equals:
A) 1.00
B) 1.15
C) 1.25
D) 1.45

Question

Quizplus · Accepted Answer

To calculate the CPI, we need to first find the total cost of the basket of goods in the base year and the total cost of the same basket of goods in the current year. 
In the base year, the total cost of the basket would be:
10 books * $25/book + 25 hamburgers * $2/hamburger = $500 + $50 = $550
In the current year, the total cost of the basket would be:
15 books * $30/book + 30 hamburgers * $3/hamburger = $450 + $90 = $540
Then we can use the formula for calculating CPI:
CPI = (Cost of basket in current year / Cost of basket in base year) * 100
CPI = ($540 / $550) * 100 = 98.18
Therefore, the CPI for 2005 on Planet Econ is 1.25 (100/98.18).

The Consumer Price Index for Planet Econ Consists of Only