Question

In: Economics

4. Price Index Problem: The following table gives information about weekly per capita food consumption and...

4. Price Index Problem: The following table gives information about weekly per capita food consumption and food prices in Russia before and after the 1917 Communist Revolution. Taking 1913 as the base year, calculate a Food Price Index for 1928 and 1940. Average weekly wages for the years covered in the table were 6 rubles in 1913, 14 rubles in 1928 and 83 rubles in 1940. Using the Food Price Indexes you have just calculated, assess what happened to the real wages of Russian workers between 1913 and 1940.

Food prices in Russia before and after the 1917 Revolution (in rubles per kilogram, except milk in liters and eggs in units)

Foodstuffs consumed weekly Price Price Price

in Moscow in 1926 Quantity 1913 1928 1940

Black Bread 2.46 kgs 0.07 0.08 0.85

Wheat flour 0.79 kgs 0.12 0.22 2.90

Potatoes 3.04 kgs 0.05 0.09 1.20

Beef 0.92 kgs 0.46 0.87 12.00

Mutton 0.17 kgs 0.34 0.79 14.00

Sugar 0.45 kgs 0.34 0.62 3.80

Milk 1.24 ltrs 0.11 0.06 2.10

Butter 0.11 kgs 1.15 2.43 17.50

Eggs 1.60 eggs 0.13 0.20 0.85

Sunflower oil 0.12 kgs 0.15 0.53 15.65

Expert Solution

Foodstuffs consumed weekly		Price		Price		Price
in Moscow in 1926	Quantity	1913	CPI	1928	CPI	1940	CPI

Black Bread	2.46	0.07	100%	0.08	114.29%	0.85	1214.29%
Wheat flour	0.79	0.12	100%	0.22	183.33%	2.9	2416.67%
Potatoes	3.04	0.05	100%	0.09	180.00%	1.2	2400.00%
Beef	0.92	0.46	100%	0.87	189.13%	12	2608.70%
Mutton	0.17	0.34	100%	0.79	232.35%	14	4117.65%
Sugar	0.45	0.34	100%	0.62	182.35%	3.8	1117.65%
Milk	1.24	0.11	100%	0.06	54.55%	2.1	1909.09%
Butter	0.11	1.15	100%	2.43	211.30%	17.5	1521.74%
Eggs	1.6	0.13	100%	0.2	153.85%	0.85	653.85%
Sunflower oil	0.12	0.15	100%	0.53	353.33%	15.65	10433.33%
Average			100%		185.45%		2839.30%

CPI=Price of a good in a year/price in base year.

The inflation rate between 1913 and 1928=(1928 CPI- 1913 CPI)/1913 CPI

The inflation rate between 1913 and 1928=(185.45-100)/100

=85/100*100

=85%

The inflation rate between 1928 and 1940=(1940 CPI- 1928CPI)/1928CPI

The inflation rate between 1913 and 1928=(2839.3-185.45)/185.5

=2653/185.45*100

=1431%

The average wage rate increased because of the massive increase in inflation between the years 1913, 1928 and 1940. The notable increase is between 1928 and 1940 when the inflation rate soared past the 1000% mark hence the highest weekly wage rate.

Rahul Sunny answered 2 years ago

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