Homework 72 MyEconLab Module Seven Homework Score 0 of 4 pts

Homework: 7-2 MyEconLab Module Seven Homework Score: 0 of 4 pts Text Problem 7-8 Suppose in 2014, the cost of a market basket of goods was $2,003. In 2016, the cost of the same market basket of goods was $2,053. Calculate the price index for 2016, using the price index formula, assume 2014 is the base year(Enter your response as an index number rounded to one decimal place ) 5 of 25 (5 complete)

Solution

Cost of the basket of goods is $2003 in 2014. In 2016, the cost of same basket with same quantities increased to $2053. If 2014 was the base year, the index value in 2014 is assumed to be 100. Hence the value of index in 2016 at 2014 prices is

2053*100/2003 = 102.50

Hence the price index in 2016 is 102.50,