Question

The table below lists the prices and quantities consumed of three different goods from 2014−2016.

	2014		2015		2016
Good	Price ($)	Quantity	Price ($)	Quantity	Price ($)	Quantity
A	12	8	16	6	18	5
B	5	18	3	30	4	25
C	1	10	2	5	5	10

a. For 2014, 2015, and 2016, determine the amount that a typical consumer pays each year to purchase the quantities listed in the table above.

Instructions: Round your answers to the nearest whole number.

	2014	2015	2016
Consumer expenditure	$	$	$

Instructions: Round your answers to two decimal places.

b. The percentage change in the amount the consumer paid is  % from 2014 to 2015 and  % from 2015 to 2016.

c. It is problematic to use your answers to part b as a measure of inflation because  (Click to select)  only income is changing  both price and consumption are changing  only consumption is changing  only price is changing  .

Instructions: Round your answers to two decimal places.

d. Suppose we take 2014 as the base year, which implies that the market basket is fixed at 2014 consumption levels. Using 2014 consumption levels, the rate of inflation is % from 2014 to 2015 and  % from 2015 to 2016. (Hint: First calculate the cost of the 2014 market basket using each year's prices and then find the percentage change in the cost of the basket.)

Instructions: Round your answers to two decimal places.

e. Repeat the exercise from part d, now assuming that the base year is 2015. Using 2015 consumption levels, the rate of inflation is  % from 2014 to 2015 and  % from 2015 to 2016. (Hint: First calculate the cost of the 2015 market basket using each year's prices and then find the percentage change in the cost of the basket.)

f. Your answers from parts d and e were different because  (Click to select)  the base years have the same consumption quantities  income has changed  the base years put different weights on the goods  prices have changed

Answer 1