Answer the question based on the following price and output data over a five-year period for an economy that produces only one good. Assume that year 2 is the base year. Refer to the above data. If year 2 is the base year, the price index for year 3 is:
A) 120
B) 125
C) 133
D) 150

Question

Answer the question based on the following price and output data over a five-year period for an economy that produces only one good. Assume that year 2 is the base year.  Refer to the above data. If year 2 is the base year, the price index for year 3 is:
A) 120 
B) 125 
C) 133 
D) 150

Quizplus · Accepted Answer

To calculate the price index for year 3 with year 2 as the base year, we need to use the formula:
Price Index = ((Cost of Market Basket in a specific year)/(Cost of Market Basket in the base year)) x 100

Using Year 2 as the base year, the cost of the market basket in year 2 is $150 and in year 3 it is $200. Therefore, the price index for year 3 is:

Price Index = ((Cost of Market Basket in year 3)/(Cost of Market Basket in year 2)) x 100
Price Index = ((200)/(150)) x 100
Price Index = 1.33 x 100
Price Index = 133

Therefore, the correct answer is option C.

Answer the Question Based on the Following Price and Output