The table below shows the market basket quantities and prices for the base year (year 1)
Base year 1 Price in price
Quantity base year yr 2
Product
Pizza 15 $3 $3.75
t-shirts 4 $10 $9
rent 1 $500 $550
In year 1 the CPI was?
In year 2 the CPI was?
I know that cpi= (expenditures in current yr/ex in base year) X 100
I am having trouble calculating this. So for year 1 would I just multilpy the price by the quantity for year 1??
To calculate the Consumer Price Index (CPI) for a given year, you need to use the formula:
CPI = (Expenditures in the current year / Expenditures in the base year) x 100
In this case, the expenditures correspond to the product of the quantity and price for each item.
For the base year, Year 1, you need to calculate the total expenditures.
For Pizza, the expenditure in Year 1 is: 15 (quantity) x $3 (price) = $45
For t-shirts, the expenditure in Year 1 is: 4 (quantity) x $10 (price) = $40
For rent, the expenditure in Year 1 is: 1 (quantity) x $500 (price) = $500
Now you can calculate the CPI for Year 1:
CPI in Year 1 = ($45 + $40 + $500) / ($45 + $40 + $500) x 100 = 100
The CPI for the base year is always equal to 100 since it serves as a reference point.
To calculate the CPI for Year 2, you follow the same process:
For Pizza, the expenditure in Year 2 is: 15 (quantity) x $3.75 (updated price) = $56.25
For t-shirts, the expenditure in Year 2 is: 4 (quantity) x $9 (updated price) = $36
For rent, the expenditure in Year 2 is: 1 (quantity) x $550 (updated price) = $550
Now you can calculate the CPI for Year 2:
CPI in Year 2 = ($56.25 + $36 + $550) / ($45 + $40 + $500) x 100
Note that the expenditures in the base year remain the same. This is because you are comparing the prices of the items in Year 2 to the prices in the base year.