This fictional price index shows info on the market basket for a company called

Question

This fictional price index shows info on the market basket for a company called CSPI (College Student Price Index) and the prices of each of the goods for the given year. Calculate the values of the CSPI price index for 2011 and 2012, using 2010 as the base year for this price index.

Between 2010 and 2011, the CSPI increased by _______%?

Between 2011 and 2012, the CSPI increased by _______%?

Which of the following, if true, would illustrate how price indexes such as the CSPI might overstate inflation in the cost of going to college? (Check ALL that apply)

Answers needed:

#1 - 2011 Price Index:

#2 - 2012 Price Index:

#3 - 2010-11 CSPI % increase:

#4 - 2011-12 CSPI % increase:

#5 - Which boxes illustrate why price indexes might OVERSTATE inflation in the costs of going to college:

As the price of calculators rose, fewer students decided to buy them, opting instead to use the free calculators in their cell phones or on their computers. Professors required each student to buy 10 textbooks, regardless of the price. Energy drinks became increasingly popular on college campuses between 2010 and 2012 due to significant improvements in flavor.

Explanation / Answer

#1 - 2011 Price Index: $1,680/$1,400=120 #2 - 2012 Price Index: $2,100/$1,400=150 #3 - 2010-11 CSPI % increase: 120/100=1.2 20% increase #4 - 2011-12 CSPI % increase: 150/120=1.25 25% increase #5 - Which boxes illustrate why price indexes might OVERSTATE inflation in the costs of going to college: The only box that illustrates why indexes may overstate inflation cost is the first box about the calculators. This is because as price rises, consumers may substitute for cheaper options and the index does not take this into account.

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