Question

Your entertainment price index (EPI) was computed based on three goods: movie tickets, popcorn, and limeade. If you change the quantity of these goods from this year to next year and the prices of two of the three goods increase while the other price falls, then:

Answer 1

Answer:

The entertainment price index (EPI) might rise or fall depending on which products or services are more expensive and their relative weight in the EPI.

Explanation:

A consumer price index, or in this case a personal entertainment price index, is based on a basket of goods (movie tickets, popcorn and limeade) and each good is assigned a relative weight on the basket. Not all goods are assigned the same weight, for example movie tickets are more relevant than popcorn and limeade since you consume popcorn and limeade when you go to the movies.

So a price increase in movie tickets will affect the EPI much more than a price increase in limeade or popcorn. Since we are not given any information about what prices increased, the change can go either way.

Answer 2

Answer:

Your entertainment price index (EPI), might fall or rise, contingent on both the quantity of the goods that you bought and the prices of these goods.

Explanation:

Price index is used extensively to estimate changes in prices overtime and are also used to measure differences in costs among different areas of countries.