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Scenario: Price Index
Suppose that in the base period a college student buys 20 gallons of gasoline at $2 per gallon, 2 CDs for $13 each, and 4 movie tickets for $7 each. In the next month, the price of gasoline is $2.25 per gallon, CDs cost $12.50 each, and the price of a movie ticket is $7.50.
-(Scenario: Price Index) Look at the scenario Price Index. The change in prices from the first to the second month is:
A)1.1%.
B)94%.
C)6.4%.
D)-6%.

Question

Quizplus · Accepted Answer

To find the change in prices we need to calculate the price index.

Price index in the base period = (20 x $2) + (2 x $13) + (4 x $7) = $84

Price index in the second month = (20 x $2.25) + (2 x $12.50) + (4 x $7.50) = $93

Change in price index = ($93 - $84) / $84 x 100% = 6.4%

Therefore, the answer is C.

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