Suppose that a gallon of milk costs $4 today and that a dozen eggs costs $1.50.

Question

Suppose that a gallon of milk costs $4 today and that a dozen eggs costs $1.50. Assume that the price of milk increases at a rate of 2% each year and that the price of eggs increases at a rate of 3% each year. If the inflation rates of these items do not change, how much will each of these items cost in 10, 20, 30, 40, and 50 years? Suppose that a gallon of milk costs $4 today and that a dozen eggs costs $1.50. Assume that the price of milk increases at a rate of 2% each year and that the price of eggs increases at a rate of 3% each year. If the inflation rates of these items do not change, how much will each of these items cost in 10, 20, 30, 40, and 50 years?

Explanation / Answer

A gallon of milk costs $4 today and that a dozen eggs costs $1.50

Price of milk increases at a rate of 2% each year and that the price of eggs increases at a rate of 3% each year.

In 10 years:

Price of milk:

4(1+0.02)^10 = $4.87

Price of eggs:

1.5(1+0.03)^10 = $2.01

In 20 years:

Price of milk:

4(1+0.02)^20 = $5.94

Price of eggs:

1.5(1+0.03)^20 = $2.709

Similarly it can be calculated for 30, 40, 50 years

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