Perform these same calculations for 2011 and 2012 and enter

Perform these same calculations for 2011 and 2012, and enter the results in the following table. 2010 2011 2012 Cost Cost Cost Quantity in Basket (Dollars) (Dollars) (Dollars) (Dollars) (Dollars) (Dollars) Notebooks Calculators Large coffees Energy drinks Textbooks Total cost Price index 16 64 104 134 150 300 40 80 85 105 1,300 100 Suppose the base year for this price index is 2010 In the last row of the table, calculate and enter the value of the CSPI for the remaining years. Between 2010 and 2011, the CSPI increased by Between 2011 and 2012, 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 2010 to 2012, with textbook companies bundling new online study aids with their As the price of energy drinks increased relative to the price of coffee between 2010 and 2012, students decreased their consumption of energy drinks and increased their consumption of coffee. Professors required each student to buy eight notebooks, regardless of the price. A new type of personal transporter, which made it easier to get around places like university campuses, became available for purchase.

Solution

Between 2010 and 2011, the CSPI increased by 10% (110 - 100). Between 2011 and 2012, the CSPI increased by 22% (132 - 110).

Check all the apply:

- The quality of textbook increase dramatically from 2010 to 2011, with textbook companies bundling new online study aids with their books. This one is apply because CSPI does not account for the quality increase if the price of textbook increases it increases because of quality but CSPI assume that quality remain constant thats why the increase in the price of the textbook would consider as inflation which is not the case in reality so it overstate the inflation.

- As the price of energy drinks increased...... . This one is also applied because it is true that if the price of the good increase the people will buy less of that good due to substitution effect but CSPI assumes that the the quantity will not reduce even if the price of good increases. so here students will decrease their consumption of energy drink and increased their consumption of coffee due to substitution effect but CSPI does not account for this and overstate inflation.

- A new type of personal transporter..... This one is also apply as the CSPI does not account for new products but as the new product available the value of a dollar will increase because now the consumer has one more product to buy from the same dollar so he/she can spent the dollar to buy more goods but as CSPI does not consider new product it underestimate the value of a dollar, thus overestimate inflation.

Not apply

		2010	2011	2012
	Quantity in Basket	Price (dollar)	Cost (dollar)	Price (dollar)	Cost (dollar)	Price (dollar)	Cost (dollar)
Notebook	8	2	16	2	8*2 = 16	4	8*4 = 32
Calculator	1	64	64	104	1*104 =104	134	1*134 = 134
Large coffees	150	2	300	2	150*2 = 300	2	150*2 = 300
Energy Drinks	40	3	120	4	40*4 = 160	5	40*5 = 200
Texbooks	10	80	800	85	10*85 = 850	105	10*105 = 1050
Total cost	5	5	1300	5	1430	5	1716
Price index	5	5	100	5	(1430/1300)*100 = 110	5	(1716/1300)*100 = 132