Question 1 What is the difference between basic, producers and purchasers' prices? In Happy Claptown, there...

 

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Question 1 What is the difference between basic, producers and purchasers' prices? In Happy Claptown, there are only 3 goods: Burgers, Patties, and Pizza. The following table shows the prices and quantities produced of these goods in 1990, 2000, and 2010: 1990 2000 2010 Price Quantity Quantity Price Price 1.00 Quantity Burgers 2.00 500 600 1.10 690 Patties 7.00 300 10.00 200 10.50 110 Pizza 0.70 300 4.00 200 0.75 420 a) A "market bundle" for a typical family is deemed to be 5 burgers, 3 patties, and 4 pizzas. Compute the consumer price index (CPI) for each of the three years, using 1990 as the base year. 9 marks b) What was the rate of inflation from 1990 to 2000, using the CPI you calculated in (a)? 2 marks c) Compute the CPI for each of the three years, using 2000 as the base year instead of 1990 but using the same "market bundle." 10 marks d) What was the rate of inflation from 2000 to 2010, using the CPI you calculated in (c)? Is it the same as your answer to (b)? 2 marks e) Now suppose that a new market bundle is defined; the "market bundle" is now 6 burgers, 2 patties, and 4 pizzas. Compute the CPI for the three years, using this "market bundle" and using 1990 as the base year. 9 marks f) What was the new rate of inflation from 2000 to 2010, using the CPI you calculated in (e)? Explain why it is different from your answer to (b)? 3 marks Question 1 What is the difference between basic, producers and purchasers' prices? In Happy Claptown, there are only 3 goods: Burgers, Patties, and Pizza. The following table shows the prices and quantities produced of these goods in 1990, 2000, and 2010: 1990 2000 2010 Price Quantity Quantity Price Price 1.00 Quantity Burgers 2.00 500 600 1.10 690 Patties 7.00 300 10.00 200 10.50 110 Pizza 0.70 300 4.00 200 0.75 420 a) A "market bundle" for a typical family is deemed to be 5 burgers, 3 patties, and 4 pizzas. Compute the consumer price index (CPI) for each of the three years, using 1990 as the base year. 9 marks b) What was the rate of inflation from 1990 to 2000, using the CPI you calculated in (a)? 2 marks c) Compute the CPI for each of the three years, using 2000 as the base year instead of 1990 but using the same "market bundle." 10 marks d) What was the rate of inflation from 2000 to 2010, using the CPI you calculated in (c)? Is it the same as your answer to (b)? 2 marks e) Now suppose that a new market bundle is defined; the "market bundle" is now 6 burgers, 2 patties, and 4 pizzas. Compute the CPI for the three years, using this "market bundle" and using 1990 as the base year. 9 marks f) What was the new rate of inflation from 2000 to 2010, using the CPI you calculated in (e)? Explain why it is different from your answer to (b)? 3 marks

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