The CPI basket for one small economy consists of 12 units of pork, 30 units of...

 

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The CPI basket for one small economy consists of 12 units of pork, 30 units of rice, and 18 units of Cotton. The price information for three years as given below: Year 2011 2012 2013 Price of Pork $10 12 16 Price of Rice $6 7 8 Price of Cotton $5 6 7 a) Using 2011 as the base year, calculate the consumer price index (CPI) for the three years, and the rate of inflation from last year (i.e. from 2012 to 2013). (7 marks) b) Just by looking at the price data given, can you identify one problem with the CPI you calculated as a measure of cost of living? Does this problem cause the CPI to overstate or understate the cost of living? (4 marks) c) You also learned that the pig farms use more of special kind of feed, which makes the pig grow faster than before. As a result, the pork is less delicious and nutritious as before. Does this problem cause the CPI to be overstated or understated? Explain. (4 marks) d) For a person in this economy, if his salary increased from $6,000 in 2011 to $7,800 in 2013, is he better off or worse off in 2013 than he was in 2011? The CPI basket for one small economy consists of 12 units of pork, 30 units of rice, and 18 units of Cotton. The price information for three years as given below: Year 2011 2012 2013 Price of Pork $10 12 16 Price of Rice $6 7 8 Price of Cotton $5 6 7 a) Using 2011 as the base year, calculate the consumer price index (CPI) for the three years, and the rate of inflation from last year (i.e. from 2012 to 2013). (7 marks) b) Just by looking at the price data given, can you identify one problem with the CPI you calculated as a measure of cost of living? Does this problem cause the CPI to overstate or understate the cost of living? (4 marks) c) You also learned that the pig farms use more of special kind of feed, which makes the pig grow faster than before. As a result, the pork is less delicious and nutritious as before. Does this problem cause the CPI to be overstated or understated? Explain. (4 marks) d) For a person in this economy, if his salary increased from $6,000 in 2011 to $7,800 in 2013, is he better off or worse off in 2013 than he was in 2011?

Answer rating: 100% (QA)

a CPI for the three years is given by 2011 CPI 10653 7 2012 CPI 12763 8 2013 CPI ... View the full answer