Question

Assume an economy produces only gallons of fuel and submarine sandwiches, as shown in the table below. Also, assume 2005 is the base year. The cost of fuel and sandwiches in 2005 is __ and the price index in 2005 is 2005 2006 Price Quantities Price Quantities Gallons of Fuel $2.50 500 $3.00 520 Submarine sandwiches $6.00 600 $6.20 610 Select one: a. $5,220; 105.2 b. $4,850; 108.5 c. $4,850; 100.0 d. $5,220, 107.6 Assume 2005 is the base year. To construct a price index, we find that the cost of fuel and sandwiches in 2006 is and the price index in 2006 is 2005 2006 Price Quantities Price Quantities Gallons of Fuel $2.50 500 $3.00 520 Submarine sandwiches $6.00 600 $6.20 610 Select one: a $5,990, 114.5 b. $5,990, 270.0 c. $5,220, 105.2 d. $5.220; 107.6

Answer 1

1.

As 2005 is base year, price index in base year is always 100

Cost of goods in 2005 = 2.5 * 500 + 6 * 600 = 4850

option c is correst answer

2.

For calculating cost of goods in 2006 we multiply qty of base year with price of good in current year

cost of goods in 2006 = 3 * 500 + 6.2 * 600 = 5220

price index = (5220 - 4850) / 4850 + 100

= 107.6

option d is correct answer