Government survey takers determine that typical family expenditures each month in the year designated as the base year are as follows:

25 pizzas at $10 each
Rent of apartment, $600 per month
Gasoline and car maintenance, $100
Phone service (basic service plus 10 long-distance calls), $50

In the year following the base year, the survey takers determine that pizzas have risen to $11 each, apartment rent is $700, gasoline and maintenance have risen to $120, and phone service has dropped in price to $40.

a) Find the CPI in the subsequent year and the rate of inflation between the base year and the subsequent year

Explanation:

1. Calculate the CPI

CPI is the consumer price index.

CPI is created using a basket of goods and services that are typically consumed.

In the given case the typical basket is:

Then to find the CPI for a determined year you multiply each item by its price and then add up all the results.

For the base year, the expenditures per month were:

Then, the CPI for the base year is:

The year following the base year, the expenditures per month are:

Then the CPI for the followng year is:

2. Calculate the rate of inflation

The rate of inflation is defined as the increase of the CPI of the given year with respect ot the base year:

The formula to calculate the rate of inflation is:

Hence, the rate of inflation for the subsequent year is 13.5%

answer///supply is elastic, and demand is inelastic;