Question

In: Economics

1. Calculating inflation using a simple price index Consider a fictional price index, the College Student...

  1. Calculating inflation using a simple price index


Consider a fictional price index, the College Student Price Index (CSPI), based on a typical college student's annual purchases. Suppose the following table shows information on the market basket for the CSPI and the prices of each of the goods in 2017, 2018, and 2019.


The cost of each item in the basket and the total cost of the basket are shown for 2017.


Perform these same calculations for 2018 and 2019, and enter the results in the following table.

image.png


Suppose the base year for this price index is 2017 .

In the last row of the table, calculate and enter the value of the CSPI for the remaining years.

Between 2017 and 2018 , the CSPI increased by _______ . Between 2018 and 2019, the CSPI increased by _______ .


Which of the following, If true, would illustrate why price indexes such as the CSPI might overstate inflation in the cost of going to college? Check all that apply.

  • As the price of calculators rose, fewer students decided to buy them, opting instead to use the free calculators in their cell phones or on their computers.

  • Energy drinks became increasingly popular on college campuses between 2017 and 2019 due to significant improvements in flavor, but this quality change is hard to measure.

  • Professors required each student to buy 10 textbooks, regardless of the price.

  • A new mobile device for personal computing became available for purchase.


Solutions

Expert Solution

2017 2018 2019
Quantity in baskets Price($) Cost($) Price($) Cost($) Price($) Cost($)
Notebooks 15 2 30 5 75 8 120
Calculators 1 70 70 100 100 130 130
Large coffees 250 2 500 2 500 2 500
Energy drinks 50 2 100 4 200 6 300
Textbooks 10 120 1200 150 1500 180 1800
Total cost 1,900 2,375 2,850
Price index 100 125 150

Between 2017 and 2018 CSPI increase by = [(125 - 100) / 100] * 100 = 25%

Between 2018 and 2019 CSPI increase by = [(150 - 125) / 125] * 100 = 20%

Ans:

  • As the price of calculators rose, fewer students decided to buy them, opting instead to use the free calculators in their cell phones or on their computers.
  • Energy drinks became increasingly popular on college campuses between 2017 and 2019 due to significant improvements in flavor, but this quality change is hard to measure.
  • A new mobile device for personal computing became available for purchase.

Related Solutions

1. Calculating inflation using a simple price index Consider a fictional price index, the College Student...
1. Calculating inflation using a simple price index Consider a fictional price index, the College Student Price Index (CSPI), based on a typical college student’s annual purchases. Suppose the following table shows information on the market basket for the CSPI and the prices of each of the goods in 2017, 2018, and 2019. The cost of each item in the basket and the total cost of the basket are shown for 2017. Perform these same calculations for 2018 and 2019,...
1. Calculating inflation using a simple price index Consider a fictional price index, the College Student...
1. Calculating inflation using a simple price index Consider a fictional price index, the College Student Price Index (CSPI), based on a typical college student’s annual purchases. Suppose the following table shows information on the market basket for the CSPI and the prices of each of the goods in 2017, 2018, and 2019. The cost of each item in the basket and the total cost of the basket are shown for 2017. Perform these same calculations for 2018 and 2019,...
1. Calculating inflation using a simple price index Consider a fictional price index, the College Student...
1. Calculating inflation using a simple price index Consider a fictional price index, the College Student Price Index (CSPI), based on a typical college student’s annual purchases. Suppose the following table shows information on the market basket for the CSPI and the prices of each of the goods in 2014, 2015, and 2016. The cost of each item in the basket and the total cost of the basket are shown for 2014. Perform these same calculations for 2015 and 2016,...
1. Calculating inflation using a simple price index Consider a fictional price index, the College Student...
1. Calculating inflation using a simple price index Consider a fictional price index, the College Student Price Index (CSPI), based on a typical college student’s annual purchases. Suppose the following table shows information on the market basket for the CSPI and the prices of each of the goods in 2017, 2018, and 2019. The cost of each item in the basket and the total cost of the basket are shown for 2017. Perform these same calculations for 2018 and 2019,...
1. Calculating inflation using a simple price index Consider a fictional price index, the College Student...
1. Calculating inflation using a simple price index Consider a fictional price index, the College Student Price Index (CSPI), based on a typical college student’s annual purchases. Suppose the following table shows information on the market basket for the CSPI and the prices of each of the goods in 2017, 2018, and 2019. The cost of each item in the basket and the total cost of the basket are shown for 2017. Perform these same calculations for 2018 and 2019,...
1. Calculating inflation using a simple price index Consider a fictional price index, the College Student...
1. Calculating inflation using a simple price index Consider a fictional price index, the College Student Price Index (CSPI), based on a typical college student’s annual purchases. Suppose the following table shows information on the market basket for the CSPI and the prices of each of the goods in 2017, 2018, and 2019. The cost of each item in the basket and the total cost of the basket are shown for 2017. Perform these same calculations for 2018 and 2019,...
Calculating inflation using a simple price index Consider a fictional price index, the College Student Price...
Calculating inflation using a simple price index Consider a fictional price index, the College Student Price Index (CSPI), based on a typical college student’s annual purchases. Suppose the following table shows information on the market basket for the CSPI and the prices of each of the goods in 2014, 2015, and 2016. The cost of each item in the basket and the total cost of the basket are shown for 2014. Perform these same calculations for 2015 and 2016, and...
1. Calculating inflation using a simple price index Consider a fictional price index, the College...
1. Calculating inflation using a simple price indexConsider a fictional price index, the College Student Price Index (CSPI), based on a typical college student’s annual purchases. Suppose the following table shows information on the market basket for the CSPI and the prices of each of the goods in 2014, 2015, and 2016.The cost of each item in the basket and the total cost of the basket are shown for 2014.Perform these same calculations for 2015 and 2016, and enter the...
1. Calculating inflation using a simple priceindexConsider a fictional price index, the College Student...
1. Calculating inflation using a simple price indexConsider a fictional price index, the College Student Price Index (CSPI), based on a typical college student’s annual purchases. Suppose the following table shows information on the market basket for the CSPI and the prices of each of the goods in 2017, 2018, and 2019.The cost of each item in the basket and the total cost of the basket are shown for 2017.Perform these same calculations for 2018 and 2019, and enter the...
Calculating inflation using a simple price index
Calculating inflation using a simple price indexConsider a fictional price index, the College Student Price Index (CSPI), based on a typical college student’s annual purchases. Suppose the following table shows information on the market basket for the CSPI and the prices of each of the goods in 2017, 2018, and 2019.The cost of each item in the basket and the total cost of the basket are shown for 2017.Perform these same calculations for 2018 and 2019, and enter the results...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT