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Analyzing a Price Index Calculation Method
An economics student is tasked with calculating a price index for 2023, using 2022 as the base year. The fixed basket of goods contains 3 pizzas and 10 sodas. In 2022, pizzas cost $10 and sodas cost $2. In 2023, pizzas cost $15 and sodas cost $2.50.
The student calculates the index for pizzas as ($15/$10) * 100 = 150, and the index for sodas as ($2.50/$2.00) * 100 = 125. They then average these two numbers to get a final price index of 137.5.
Identify the fundamental error in the student's methodology and explain why it is incorrect.
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Economics
Economy
Introduction to Macroeconomics Course
Ch.4 Inflation and unemployment - The Economy 2.0 Macroeconomics @ CORE Econ
The Economy 2.0 Macroeconomics @ CORE Econ
CORE Econ
Social Science
Empirical Science
Science
Analysis in Bloom's Taxonomy
Cognitive Psychology
Psychology
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GDP Deflator
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Interpreting a Price Index
If the total cost of a fixed basket of goods has increased by exactly 25% since the designated base year, the price index for the current year will be 125.
Calculating Basket Cost from a Price Index
An economy tracks the price of a fixed basket of goods, which consists of 5 pizzas and 10 sodas. The prices for these goods over three years are shown in the table below.
Year Price of a Pizza Price of a Soda 2021 $10.00 $2.00 2022 $12.00 $2.50 2023 $15.00 $3.00 By selecting 2022 as the base year, what is the calculated price index for the year 2023, rounded to one decimal place?
Analyzing a Price Index Calculation Method
A country's price index for the current year is calculated to be 95, using the previous year as the base period. Which of the following statements accurately describes the relationship between the cost of the fixed basket of goods in the two years?
Analyzing an Incorrect Price Index Calculation
An economy's fixed basket of goods consists of 20 apples and 10 bananas. The table below shows the price of these goods over three years. Using Year 1 as the base year, match each year to its correct price index.
Year Price of an Apple Price of a Banana Year 1 $1.00 $2.00 Year 2 $1.20 $2.50 Year 3 $1.50 $2.00 An economy's fixed basket of goods consists of 5 pizzas and 10 sodas. In the base year, the price of a pizza was $10 and the price of a soda was $2. In the current year, the price of a soda has risen to $2.80, and the overall price index is calculated to be 140. Based on this information, what must be the price of a pizza in the current year? (Enter a numerical value only, without the dollar sign)