Consider Table 7-3 but suppose that the market basket is composed of 100 oranges, 50 grapefruit, and 200 lemons. How does this change the pre-frost and post-frost price indexes? Explain. Generalize your explanation to how the construction of the market basket affects the price index.

Table 7-3

Transcribed Image Text:

Price of orange Price of grapefruit Price of lemon Cost of market basket (200 oranges, 50 grapefruit, 100 lemons) Pre-frost $0.20 0.60 0.25 (200 x $0.20) + (50 x $0.60) + (100 x $0.25) = $95.00 Post-frost $0.40 1.00 0.45 (200 x $0.40) + (50 x $1.00) + (100 x $0.45) = $175.00