Question

Examine a basket of retail goods with the corresponding prices below. What is the price index in year 4 if year 1 is the base year? What is the price index in year 4 if year 3 is the base year? Good Amount Year 1 Price Year 2 Price Year 3 PriceYear 4 Price Tuna 30 $2.50 $2.70 $2.95 $3.20 Onions Sugar l $0.70$0.80 $0.92 %1.05 $12 $14.50$16.70 $19

How does equal 133 and 109.56? If your going to the answer on paper can you write as clear as you can I have bad eyesight. Also please go in great detail on what I need to do to solve this problem.

Total spending on the basket of goods is $91.20 in year 1, $110.72 in year 3, and $121.30 in year 4.

Answer 1

CASE 1

Year 1 is the base year.

Calculate the value of basket of retail good in year 1 -

Value = [Amount of Tuna * Price of Tuna] + [Amount of onions * Price of onions] + [Amount of sugar * Price of sugar]

Value = [30 * $2.50] + [6 * $0.70] + [1 * $12]

Value = $75 + $4.20 + $12

Value = $91.20

The value of basket of retail goods in Year 1 is $91.20

Calculate the value of basket of retail good in year 4 -

Value = [Amount of Tuna * Price of Tuna] + [Amount of onions * Price of onions] + [Amount of sugar * Price of sugar]

Value = [30 * $3.20] + [6 * $1.05] + [1 * $19]

Value = $96 + $6.30 + $19

Value = $121.30

The value of basket of retail goods in Year 4 is $121.30

Calculate the Price index in year 4 -

Price index = (Value of basket of retail goods in Year 4/Value of basket of retail goods in Year 1) * 100

Price index = ($121.30/$91.20) * 100 = 133

The Price Index in year 4 if year 1 is the base year is 133.

CASE 2

Year 3 is the base year.

Calculate the value of basket of retail good in year 3 -

Value = [Amount of Tuna * Price of Tuna] + [Amount of onions * Price of onions] + [Amount of sugar * Price of sugar]

Value = [30 * $2.95] + [6 * $0.92] + [1 * $16.70]

Value = $88.50 + $5.52 + $16.70

Value = $110.72

The value of basket of retail goods in Year 3 is $110.72

Calculate the value of basket of retail good in year 4 -

Value = [Amount of Tuna * Price of Tuna] + [Amount of onions * Price of onions] + [Amount of sugar * Price of sugar]

Value = [30 * $3.20] + [6 * $1.05] + [1 * $19]

Value = $96 + $6.30 + $19

Value = $121.30

The value of basket of retail goods in Year 4 is $121.30

Calculate the Price index in year 4 -

Price index = (Value of basket of retail goods in Year 4/Value of basket of retail goods in Year 3) * 100

Price index = ($121.30/$110.72) * 100 = 109.56

The Price Index in year 4 if year 3 is the base year is 109.56