Question
Suppose that people consume only three goods, as shown in this table: & Tennis Balls & Golf Balls & }(c) Bottles of Gatorade 2020 price & 2 & 4 & 1 2020 quantity & 100 & 100 & 200 2021 price & 2 & 6 & 2 2021 quantity & 100 & 100 & 200 1. What is the percentage change in the price of each of the three goods? 2. Using a method similar to the CPI, compute the percentage change in the overall price level. 3. If you were to learn that a bottle of Gatorade increased in size from 2020 to 2021, should that information affect your calculation of the inflation rate? If so, how? 4. If you were to learn that Gatorade introduced new flavors in 2021, should that information affect your calculation of the inflation rate? If so, how?
Answer
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Queenie
Advanced · Tutor for 1 years
Answer
1. The percentage change in price for Tennis Balls = 0 The percentage change in price for Golf Balls = ((6 - 4)/4) * 100 = 50% The percentage change in price for Gatorade = ((2 - 1)/1) * 100 = 100%. 2. 2020 Basket Cost = (2 * 100 ) + (4 * 100) + (1 * 200) =
1600 Percentage Change (CPI) = ((1600 - 800)/800) * 100 = 100% 3. Yes, it should. Because the volume of the bottle has increased. This increases the value consumers derive from the same price!4. Yes, it should. The new flavors represent an enhancement in consumer choices, leading them to derive more fulfilment from their consumptions at a static worth positions. Yet another contribution to the escalated price value difference which marked up inflational surges possibly.
Explanation
1. The percentage change in the price of each of the goods can be calculated using the formula : [% Change = ((New Price - Old Price) / Old Price) * 100]2. The Consumer Price Index (CPI) calculates the percentage change in the overall price level. For this, we first need to calculate the total cost of the basket in both years (Cost = Quantity * Price). After determining these total costs, we calculate the percentage change in the cost_asimated classifying it as inflation rate or change in overall price level. 3. If the bottle of Gatorade increased in size from 2020 to 2021, it should indeed affect the calculation of the inflation rate, as the unit value of goods has now been altered or increased. This essentially means that consumers are getting more for their money and might not necessarily reflect as "inflation". Since it is a factor of enhanced value, realizing more because of purchasing, the increase in price may be a reflection of the additional value now included due to the upsized product.4. That Gatorade introduced new flavors in 2021 shows yet another improvement in the value assumption of the goods. Usually when fresh options are presented, price increases. Even if quantity is still the same, consumers are presently paying for the added choice or possibly superior product—a variety that may generally come priced higher. Therefore, improved value in goods might intensify inflation measures as a consequence, but it's basically a victom reflecting changed propensity of the same price.