The table below shows the average annual consumption bundle and prices in 2012 and 2013: Streaming...

The table below shows the average annual consumption bundle and prices in 2012 and 2013:

	Streaming Movies	Popcorn
2012 {quality, price/unit}	{10000 hrs, $1.00/hr}	{5000 bags, $2.00/bag}
2013 {quantity, price/unit}	{12000 hrs, $0.95/hr}	{4000 bags, $2.20/bag}

(a) What is the percentage change in the price of each good? Calculate the consumer price index (CPI) for 2012 and 2013 using 2012 as the base year. What is the inflation rate in the CPI?

(b) Are all consumers equally affected by the change in the “cost of living” (the CPI)? Explain.

(c) What does the change in quantities in 2013 tell you about whether the CPI might overstate or

understate the effect of price changes on the “cost of living”?

Expert Solution

Rahul Sunny answered 1 year ago

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