Question

The consumer price index for Planet Econ consists of only two items: books and hamburgers. In 2015, the base year, the typical consumer purchased 10 books for $20 each and 200 hamburgers for $1 each. In 2017, the typical consumer purchased 12 books for $23 each and 300 hamburgers for $1.15 each. The consumer price index for 2017 on Planet Econ equals:A. 1.00B. 1.15C. 1.25D. 1.45

Answer 1

Answer:

The correct answer is option B.

Explanation:

The consumer price index for Planet Econ consists of only two items: books and hamburgers.

In 2015, the base year, the typical consumer purchased 10 books for $20 each and 200 hamburgers for $1 each.

In 2017, the typical consumer purchased 12 books for $23 each and 300 hamburgers for $1.15 each.

The consumer price index will be the ratio of cost of the basket of goods in the current period and the cost of basket in the base period.

Consumer price index

= $\frac{10\ \times\ 23\ +\ 200\ \times\ 1.15}{10\ \times\ 20\ +\ 200\ \times\ 1 }$

= $\frac{460}{400}$

= 1.15