Table 24-2

The following table pertains to Wiskancia, an economy in which the typical consumer's basket consists of 15 pounds of apples and 7 teddy bears.

Year

Price of Apples

(Dollars per pound)

Price of Teddy bears

(Dollars per toy)

1 14 7
2 12 5
3 15 9

Refer to Table 24-2. If the base year is Year 1, then the CPI in Year 3 was

Question

Table 24-2

The following table pertains to Wiskancia, an economy in which the typical consumer's basket consists of 15 pounds of apples and 7 teddy bears.

​

Year

Price of Apples

(Dollars per pound)

Price of Teddy bears

(Dollars per toy)

1	14	7
2	12	5
3	15 	9

​

Refer to Table 24-2. If the base year is Year 1, then the CPI in Year 3 was

BlackTom AI · Accepted Answer

To begin, restate the scenario: we have a fixed basket consisting of 15 pounds of apples and 7 teddy bears, and we’re using Year 1 as the base year to compute the CPI in Year 3.

Option A: 74.7. This would imply a substantial drop from the base-year cost, which cannot be correct since Year 3 prices are higher for both goods (apples: 14 in Year 1 vs 15 in Year 3; bears: 7 in Year 1 vs 9 in Year 3). A base-cost of 259 and a Year-3-cost of 288 already indicate inflation, not deflation, so 74.7 is inconsistent with the provided price changes.

Option B: 100. This would mean no change in the overall price level from Year 1 to Year 3. However, since both components of the basket have higher prices in Year 3 (apples up from 14 to 15, bears up from 7 to 9), the total cost in Year 3 must exceed the base-year cost, so 100 is not plausible.

Option C: 120.5. This value would correspond to a substantial increase in the cost relative to Year 1, but we should check the exact calculation: if the base-year cost is 15×14 + 7×7 = 210 + 49 = 259, and the Year-3 cost is 15×15 + 7×9 = 225 + 63 = 288, then the CPI is (288 / 259) × 100 ≈ 111.2. Therefore 120.5 overstates the CPI.

Option D: 111.2. This matches the calculated CPI: (Year-3 total cost) ÷ (Base-year total cost) × 100 = (225 + 63) ÷ (210 + 49) × 100 = 288 ÷ 259 × 100 ≈ 111.196, which rounds to 111.2. The calculation uses the correct basket quantities, base-year prices, and Year-3 prices, producing a plausible inflation figure.

In summary, the key steps are: determine the fixed basket cost in the base year, compute the cost of that same basket in Year 3 using Year 3 prices, form the ratio to base-year cost, and convert to an index by multiplying by 100. The results for Options A, B, and C fail to align with this logical sequence and the directional change in prices, while Option D aligns precisely with the arithmetic.

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