Suppose that people consume only three goods, as shown in this table:
|
TENNIS BALLS
|
TENNIS RACQUETS
|
GATORADE
|
|
|
2001 price
|
$2
|
$40
|
$1
|
|
2001 quantity
|
100
|
10
|
200
|
|
2002 price
|
$2
|
$60
|
$2
|
|
2002 quantity
|
100
|
10
|
200
|
a. What is the percentage change in the price of each of the three goods? What is the percentage change in the overall price level?
Suppose that the residents of Vegopia spend all of their income on cauliflower, broccoli, and carrots. In 2001 they buy 100 heads of cauliflower for $200, 50 bunches of broccoli for $75, and 500 carrots for $50. In 2002 they buy 75 heads of cauliflower for $225, 80 bunches of broccoli for $120, and 500 carrots for $100.
If the base year is 2001, what is the CPI in both years? What is the inflation rate in 2002.