** average consumer consumes 2 pizzas and 6 gallons of gas per yer** a.Is there
ID: 1140500 • Letter: #
Question
** average consumer consumes 2 pizzas and 6 gallons of gas per yer**
a.Is there a year where inflation is negative? Why does this happen?
b.what is the source of inflation in the year 2011? How is this different than inflation in year 2009 to 2010?
c. I have 100 dollars in 2008. How many baskets of goods can I buy with $100 in 2008? How many with $100 in 2013? What is the percentage decline in the purchasing power of my money? How does the percentage decline in the purchasing power of money relate to the change in the value of the price index between 2008 and 2013?
d. From 2009 to 2011, the price of pizza remains the same. The price of gas rises how might consumers respond to such a change. In 2012, the price of gas falls what are implications of such changes in relative prices for the construction of the consumer price index?
Year Price of Price of Cost of Pizza Index Number Inflation Gas consumer price basket 2008 2009 2010 2011 2012 2013 $10.00 $3.00 $38 $11.00 $3.30 $41.80 $11.55 $3.47 $43.92 $11.55 $3.50 $44.10 $11.55 $2.50 $38.10 $11.55 $3.47 $43.92 100 110 115.57 116.06 100.26 115.57 10% 15.07% 10.41% |-13.61% | 15.28%Explanation / Answer
a) Yes in 2012 inflation is negative. The inflation is negative because prices decreases.
b) The source of inflation in year 2011 is the price of gas which has increased from 3.47 to 3.50. It is different from 2009 and 2010 because in those years there is an increase in price of both gas and Pizza.
c) In 2008 we can buy 100/38 = 2.63 basket. In 2013 we can buy 100/43.92 = 2.28 basket.
Percentage decline in purchasing power is ((2.28 - 2.63)/2.63) *100 = -13.3 percent. The change in purchasing power also explains the inflation which is also explained by price index. Both suggest an increase in inflation.
d) Consumer will continue to consume at same level because gas is a necessity good.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.