Business, 11.02.2020 17:25 simonthang8

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1. Calculating inflation using a simple price index

Consider a fictional price index, the College Student Price Index (CSPI), based on a typical college student’s annual purchases. Suppose the following table shows information on the market basket for the CSPI and the prices of each of the goods in 2014, 2015, and 2016.

The cost of each item in the basket and the total cost of the basket are shown for 2014.

Perform these same calculations for 2015 and 2016, and enter the results in the following table.

Quantity in Basket
2014

2015

2016

Price Cost Price Cost Price Cost
(Dollars) (Dollars) (Dollars) (Dollars) (Dollars) (Dollars)
Notebooks 15 2 30 5 8
Calculators 1 70 70 100 130
Large coffees 250 2 500 2 2
Energy drinks 50 2 100 4 6
Textbooks 10 120 1,200 150 180
Total cost 1,900
Price index 100
Suppose the base year for this price index is 2014.

In the last row of the table, calculate and enter the value of the CSPI for the remaining years.

Between 2014 and 2015, the CSPI increased by. Between 2015 and 2016, the CSPI increased by.

Which of the following, if true, would illustrate why price indexes such as the CSPI might overstate inflation in the cost of going to college? Check all that apply.

The quality of textbooks increased dramatically from 2014 to 2016, with textbook companies bundling new online study aids with their books, but this quality change is hard to measure.

A new type of personal transporter, which made it easier to get around places like university campuses, became available for purchase.

As the price of energy drinks increased relative to the price of coffee between 2014 and 2016, students decreased their consumption of energy drinks and increased their consumption of coffee.

Professors required each student to buy 10 textbooks, regardless of the price.

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