An economy's statistical agency tracks a simplified basket of goods for a typical consumer, which consists of 10 pizzas and 20 coffees per month. In the base year, a pizza costs $10 and a coffee costs $2. In the current year, a pizza costs $12 and a coffee costs $2.50. What is the value of the price index in the current year?

Impact of Price Changes on a Fixed Consumption Basket

A country's price index is calculated using a simplified, fixed basket of goods containing 10 gallons of gasoline and 5 loaves of bread. In the past year, the price of gasoline increased by 50%, while the price of bread remained unchanged. In response, consumers began using public transportation more and reduced their actual gasoline consumption to 5 gallons, while their bread consumption stayed the same. How does this change in consumer behavior affect the accuracy of the calculated price index as a measure of the change in the cost of living?

Evaluating a Simplified Consumption Basket