Suppose that the market basket for the university student price index (USPI) consists of 5 textbooks and 100 gallons of gasoline. In 2010, the base year for this index, textbooks cost $50 each and gas cost $1 per gallon. In 2011, textbooks cost $80 each and gasoline cost $3 per gallon. The USPI for 2011 is:
A)100.
B)150
C)200.
D)250.

Question

Quizplus · Accepted Answer

First, we need to find the total cost of the basket in the base year (2010):
5 textbooks x $50 each = $250
100 gallons of gas x $1 per gallon = $100
Total cost of basket in 2010 = $250 + $100 = $350

Next, we need to find the total cost of the basket in 2011:
5 textbooks x $80 each = $400
100 gallons of gas x $3 per gallon = $300
Total cost of basket in 2011 = $400 + $300 = $700

To calculate the USPI, we use the following formula:

USPI = (total cost of basket in year t / total cost of basket in base year) x 100

USPI for 2011 = ($700 / $350) x 100 = 200

Therefore, the USPI for 2011 is 200.

Suppose That the Market Basket for the University Student Price