economics

Find the CPI for each year(2005 is he base year;and take 2005 as the fixed basket of goods for each year):

2005 price of apple is $1 for 100 quantity produced. Banana $2 for 50 quantity produced.

2006 price of apple is $2 for 150 quantity produced. Banana $3 for quantity of 100.

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  1. First calculate the "weight" of each good -- that is the percentage of total expenditures spent on that good. In 2005, $100 are spent on apples, $100 on bananas, for a total of $200. The weight of apples is 0.50

    In 2006, price of apples went up by 100%, price of bananas went up by 50%
    Take the weighted average .5*100% + .5%50% = 75%
    CPI in 2005 = 100, CPI in 2006 = 175.

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