Suppose there is a simple economy where people consume only 2 goods, food and clothing. Further suppose that the market basket of goods used to calculate CPI consists of 20 units of clothing and 100 units of food.
|
Food
|
Clothing
|
|
2004 price per unit
|
$8
|
$20
|
|
2005 price per unit
|
$12
|
$40
|
1. Calculate the percentage changes in price of food and percentage change in price of clothing among 2004 and 2005.
2. Determine the percentage change in the CPI among 2004 and 2005.\
3.Do you think the CPI price changes affect all consumers in the economy to the same extent? Explain