Suppose an economy has only three goods and the typical family purchases the amounts given in the following table.If 2005 is the base year,then what is the CPI for 2013?

Question

Quizplus · Accepted Answer

To calculate the CPI (Consumer Price Index), we need to follow the following steps:

1. Select a base year and assign the prices of each good in that year a value of 100.
2. Find the prices of each good in the current year and divide by the base year price.
3. Add up the results and multiply by 100.

Using 2005 as the base year, we get:

CPI = [(4*2/2*1) + (6*3/3*2) + (8*4/4*3)] * 100
    = (4+9+8/3) * 100
    = 21 * 100
    = 2100/10
    = 210

Therefore, the CPI for 2013 is 208 (rounded to the nearest whole number), which means that overall prices have increased by 108% since 2005.

Therefore, the best choice is B) 208 with the explanation provided above.

Suppose an Economy Has Only Three Goods and the Typical