Which is likely to have the larger effect on the CPI, a 2 percent increase in food or a 3 percent increase in diamond rights? (Hint: Assume a normally distributed country with male:female ratio of 1:1)
Can anyone please give me some hints to do it???or explain to me???I am kind of confused with this.
THANKS A LOT!!!!
How many people buy food? How many buy diamonds?
folks will experience a two percent rise each month for food, but in diamonds, most folks don't buy these each month, many of use don't buy them once a year. What do you think will have the impact on ordinary consumers?
One more side point: I don't know what you mean by normally distributed...gender ratios are more females in all countries except China (reason is known).
To determine which factor— a 2 percent increase in food or a 3 percent increase in diamond rights— is likely to have a larger effect on the Consumer Price Index (CPI), we need to understand what the CPI measures and how it is calculated.
The CPI is a measure of the average change in prices of a basket of goods and services commonly consumed by households. It tracks the price movements over time to reflect inflation (or deflation) in an economy. It helps to assess the purchasing power of money and inflationary pressures.
To calculate the CPI, statisticians regularly collect price data on a set of goods and services called the "basket of goods." These goods include items like food, clothing, housing, transportation, and more. The basket is designed to represent the typical spending patterns of an average household in a country.
The weights assigned to different items in the basket reflect their relative importance in household expenses. For example, if food and its subcategories constitute 10 percent of an average household's expenses, it will have a weight of 10 percent in the CPI calculation.
Now, considering the scenario provided, let's break it down:
1. A 2 percent increase in food:
If food has a significant weight in the basket of goods (let's say 20 percent), a 2 percent increase in its price would contribute (20 percent * 2 percent) = 0.4 percentage points to the overall CPI.
2. A 3 percent increase in diamond rights:
The impact of a 3 percent increase in diamond rights depends on its weight in the basket. However, it is unlikely that diamond rights have a significant weight in the typical household's expenses. Thus, let's assume a negligible weight for simplicity.
Considering the above, it is clear that a 2 percent increase in food would likely have a larger effect on the CPI compared to a 3 percent increase in diamond rights, as the latter has a negligible weight in the basket.
Please note that this is a simplified analysis to understand the general idea. In reality, CPI calculations involve more detailed and comprehensive methodologies, with considerations for various factors such as quality adjustments, substitution effects, and more.