Question

Suppose a typical Canadian consumer purchases three goods, creatively named good A, good B, and good C. The prices of these goods are listed in the table below.

Good	Price in 2018 ($)	Price in 2019 ($)
A	10	15
B	6	5
C	2	3

Instructions: Round your answers to two decimal places.

a. If the typical consumer purchases two units of each good, the percentage increase in the price paid by the consumer for this basket between 2018 and 2019 is -----%

b. If the typical consumer purchases 10 units of good B and 2 units of both good A and good C, the percentage increase in the price paid by the consumer for this basket is ----- %.

c. The percentage change in price is:

	is always negative.
	always positive.
	not dependent on the quantities of goods in the basket.
	determined by the relative quantities of the goods and the relative price change for those goods.

Answer 1

Answer to question a) :- Total expenditure in 2018 for the basket of goods = 2*10 + 2*6 + 2*2 = 36

Total expenditure in 2019 for the basket of goods = 2*15 + 2*5 + 2*3 = 46

Percentage increase in price paid by the consumer for this basket is :-

(Total price paid in 2019 - Total price paid in 2018)/Total price paid in 2018

That is ,

(46 - 36)/36 = 10/36 = 0.27777 = 27.77%

Answer to question b) :- Total price paid in 2018 for the basket of goods = 2*10 + 10*6 + 2*2 = 84

Total price paid in 2019 for the basket of goods = 2*15 + 10*5 + 2*3 = 86

Percentage change in price paid by the consumer for this basket =

(Total price paid in 2019 - Total price paid in 2018)/ Total price paid in 2018

(86 - 84)/84 = 2/84 = 0.0238 = 2.38%

Answer to question c) :- option d) determined by the relevant quantities of the goods and the relative price change for those goods.