Question

Please show your work.

Economy of Penny-Blossom calculates price index of hair product. People in Penny-Blossom buy hair dryers, hair brushes, and hair accessories. In 2015, they bought 1 hair dryers for $30, 2 hair brushes for $10 each, and 5 hair accessories for $4 each. In 2016, they bought 1 hair dryer for $35, 3 hair brushes for $12 each, and 6 hair accessories for $5 each. Year 2015 is a base year. What is the CPI for 2016?

Question options:

	a) 120
	b) 101
	c) 144.28
	d) 84

Answer 1

The correct choice is a ) 120

The CPI in the base year 2015 = 100

Cost of market basket of goods in 2015 = ( 1 x $ 30 + 2 x $ 10 + 5 x $ 4)

Cost of market basket of goods in 2015 = $ 70

Cost of the market basket of goods in 2016 = ( 1 x $ 35 + 2 x $ 12 + 5 x $ 5)

Cost of the market basket of goods in 2016 = $ 84

CPI in 2016 = ( Cost of the market basket of goods in 2016 Cost of market basket of goods in 2015 ) x 100

CPI in 2016 = ( 84 / 70) x 100

CPI in 2016 = 120