Question

Suppose a typical family in Bananaland consumes only three goods: bananas, sunscreen and gasoline. Each year the typical familypurchases 100 kilos of bananas, 50 bottles of sunscreen and 150 litres of gasoline. The following table shows the prices of bananas, sunscreen and gasoline for 3 years. 2006 2007 2008 Bananas (price per kilo) $1.80 Sunscreen (price per bottle) $2.00 Gasoline (price per litre) $0.80 Rounded to one decimal point, the CPI for 2008 is $2.00 $2.10 $1.00 $2.20 $2.15 $0.90 A/

Answer 1

Cost of basket in 2006 = 1.8*100 + 2.00*50 + 0.8*150 = 400

Cost of basket in 2007 = 2.00*100 + 2.10*50 + 1.0*150 = 455

Cost of basket in 2008 = 2.20*100 + 2.15*50 + 0.9*150 = 462.50

CPI in 2008 = 462.50 / 400 * 100 = 115.625 ~ 115.6 (rounded to one decimal places)