In 1995, the CPI was 152.5 and the price of an economics textbook was 70.00 dollars and a music cd was 16.00 dollars. If the CPI was 172.3 in 2007, what were the prices of the economics textbook and the music cd in 2007 dollars
To find the prices of the economics textbook and the music CD in 2007 dollars, we need to adjust the prices using the Consumer Price Index (CPI) for the respective years.
The CPI is a measure of the average change in prices of goods and services over time. It allows us to compare the value of a specific dollar amount in one year to the value of the same dollar amount in another year.
First, we need to calculate the CPI inflation rate for the period between 1995 and 2007. The formula for calculating the inflation rate is as follows:
Inflation Rate = (CPI in 2007 - CPI in 1995) / CPI in 1995
Using the given values, we can calculate the inflation rate:
Inflation Rate = (172.3 - 152.5) / 152.5
Inflation Rate = 19.8 / 152.5
Inflation Rate = 0.1298 (rounded)
Now, we can adjust the prices of the economics textbook and the music CD in 1995 to their equivalent values in 2007.
Price of Economics Textbook in 2007 = Price in 1995 + (Price in 1995 x Inflation Rate)
Price of Economics Textbook in 2007 = $70.00 + ($70.00 x 0.1298)
Price of Economics Textbook in 2007 = $70.00 + $9.086 = $79.086 (rounded to $79.09)
Price of Music CD in 2007 = Price in 1995 + (Price in 1995 x Inflation Rate)
Price of Music CD in 2007 = $16.00 + ($16.00 x 0.1298)
Price of Music CD in 2007 = $16.00 + $2.598 = $18.598 (rounded to $18.60)
Therefore, the price of the economics textbook in 2007 dollars would be approximately $79.09, and the price of the music CD in 2007 dollars would be approximately $18.60.
To find out the prices of the economics textbook and the music CD in 2007 dollars, we need to adjust the prices using the CPI. Here are the steps:
Step 1: Calculate the inflation rate between 1995 and 2007.
Inflation rate = (CPI in 2007 - CPI in 1995) / CPI in 1995
Inflation rate = (172.3 - 152.5) / 152.5
Inflation rate = 0.1305
Step 2: Calculate the price adjustment factor.
Price adjustment factor = 1 + inflation rate
Price adjustment factor = 1 + 0.1305
Price adjustment factor = 1.1305
Step 3: Adjust the prices of the economics textbook and the music CD.
Price of economics textbook in 2007 dollars = Price in 1995 dollars x Price adjustment factor
Price of economics textbook in 2007 dollars = $70.00 x 1.1305 ≈ $79.14
Price of music CD in 2007 dollars = Price in 1995 dollars x Price adjustment factor
Price of music CD in 2007 dollars = $16.00 x 1.1305 ≈ $18.09
Therefore, the prices of the economics textbook and the music CD in 2007 dollars were approximately $79.14 and $18.09, respectively.