The breakfast fixed market basket consists of one gallon of milk, one pound of sliced bacon, and one dozen eggs. In 1995, the gallon of milk cost $2.48, the pound of sliced bacon cost $1.99, and the dozen eggs cost $0.93. In 2011, the gallon of milk cost $3.57, the pound of sliced bacon cost $4.63, and the dozen eggs cost $1.77. What is the breakfast fixed market basket price index in 2011 using 1995 as the base year?
A) 185
B) 54
C) $1.85
D) $0.54
E) 0.54

Question

Quizplus · Accepted Answer

To calculate the price index, we need to use the formula:

Price index = (current year cost / base year cost) x 100

For milk:
Price index = (3.57 / 2.48) x 100 = 143.14

For bacon:
Price index = (4.63 / 1.99) x 100 = 232.16

For eggs:
Price index = (1.77 / 0.93) x 100 = 190.32

To find the overall price index, we take the average of the three individual price indices:

Overall price index = (143.14 + 232.16 + 190.32) / 3 = 185.20

Therefore, the breakfast fixed market basket price index in 2011 using 1995 as the base year is 185.

The Breakfast Fixed Market Basket Consists of One Gallon of Milk