Suppose there are only two goods (Good A and Good B)and the average person buys 4 of Good A in a year and 3 of Good B. If, in the base year, the Price of Good A is $5 and the Price of Good B is $10, and in the next year the Price of Good A is $6 and the Price of Good B is $9, the price index in the second of the two years

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Quizplus · Accepted Answer

To calculate the price index, we use the formula: (Cost of basket in current year / Cost of basket in base year) * 100. The cost in the base year is (4*$5 + 3*$10) = $50. The cost in the next year is (4*$6 + 3*$9) = $51. The price index is ($51/$50) * 100 = 102.

Suppose There Are Only Two Goods (Good a and Good