The table below lists the prices and quantities consumed of

The table below lists the prices and quantities consumed of three different goods from 2010-2012. 2010 2011 2012 e (S) rice () ntity a. For 2010, 201, and 2012, determine the amount that a typical consumer pays each year to purchase the quantities listed in the table above. Instructions: Round your answers to the nearest whole number 2010 2011 2012 Consumer expenditure s Instructions: Round your answers to two decimal places. b. The percentage change in the amount the consumer paid is C. It is problematic to use your answers to part b as a measure of inflation because (bothp e and Instructions: Round your answers to two decimal places. d. Suppose we take 2010 as the base year, implying that the market basket is fixed at 2010 consumption levels. Using 2010 consumption levels, the rate of inflation was Instructions: Round your answers to two decimal places. e. Repeat the exercise from part d, now assuming that the base year s 2011. Using 2011 consumption levels, the rate of inflation is t Your answers from parts d and e were different because the bese yeers put Ciiferent weights on the goods % from 2010 to 2011, and % from 2011 to 2012. % from 2010 to 2011, and % from 2011 to 2012 -2.98 % from 2010 to 2011, and 26.75 % from 2011 to 2012.

Solution

2010 2011 2012 Item Price $ Quantity Price $ Quantity Price $ Quantity A 10 10 16 8 18 5 B 5 18 13 30 4 25 C 1 10 2 5 5 10 a) 2010 2011 2012 Consumer expenditure $200 $528 $240 Workings Consumer expenditure for 2010 Item Price $ Quantity Consumer expenditure for 2010 Price x Quantity A 10 10 100 B 5 18 90 C 1 10 10 200 Consumer expenditure for 2011 Item Price $ Quantity Consumer expenditure for 2011 Price x Quantity A 16 8 128 B 13 30 390 C 2 5 10 528 Consumer expenditure for 2012 Item Price $ Quantity Consumer expenditure for 2012 Price x Quantity A 18 5 90 B 4 25 100 C 5 10 50 240 b. The percentage change in the amount the consumer paid is From 2010 to 2011 ((528-200)/200)) 100 164% From 2011 to 2012 ((240-528)/528)) 100 -54.55% c. Both price and consumption are changing. 2010 2011 2012 market basket in 2010 Price in 2010 x Quantity in 2010 market basket in 2011( Price in 2010 x Quantity in 2011 market basket in 2012 Price in 2010 x Quantity in 2012 Item Price $ Quantity Price $ Quantity Price $ Quantity A 10 10 16 8 18 5 100 80 50 B 5 18 13 30 4 25 90 150 125 C 1 10 2 5 5 10 10 5 10 200 235 185 CPI=( Cost of the base year market basket in the current period (2011)/Cost of the base year market basket in the base period (2010)x100 CPI for 2011= (235/200) 100 117.5 Inflation rate between 2010 to 2011 (Current period CPI-Prior period CPI)/Prior period CPI (117.5-100)/100 17.50% Inflation rate between 2010 1nd 2011 is 17.50%