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Use the following table to answer the question. The table shows the prices and the quantities consumed in Vegetarian Country. Suppose the base year is 2020. Also, suppose that 2020 is the year the typical consumption basket was determined, so the quantities consumed in 2020 are the only quantities needed to calculate the CPI in each year.
| Year | Price of Carrots | Quantity of Carrots | Price of Celery | Quantity of Celery |
| 2020 | $2.00 | 100 | $1.00 | 100 |
| 2021 | 2.50 | 90 | 0.90 | 120 |
| 2022 | 2.75 | 105 | 1.00 | 130 |
Suppose the base year is changed in the table from 2020 to 2022. Also, suppose that the typical consumption basket was now determined in 2022 (now use the 2022 consumption basket). What is the new value of the CPI in 2021?
Step 1: Calculate the cost of the basket in the base year (2022)Price of Carrots in 2022 = $2.75Price of Celery in 2022 = $1.00Quantity of Carrots in 2022 = 105Quantity of Celery in 2022 = 130Cost of Basket in 2022=(2.75×105)+(1.00×130)=288.75+130=418.75\text{Cost of Basket in 20...
Read MoreUse the following table to answer the question. The table shows the prices and the quantities consumed in Vegetarian Country. Suppose the base year is 2020. Also, suppose that 2020 is the year the typical consumption basket was determined, so the quantities consumed in 2020 are the only quantities needed to calculate the CPI in each year.
| Year | Price of Carrots | Quantity of Carrots | Price of Celery | Quantity of Celery |
| 2020 | $2.00 | 100 | $1.00 | 100 |
| 2021 | 2.50 | 90 | 0.90 | 120 |
| 2022 | 2.75 | 105 | 1.00 | 130 |
The table shows that the 2021 inflation rate is biased upward because of _______.
he correct answer is c. substitution bias.Substitution bias occurs when the CPI fails to account for changes in consumer behavior in response to price changes. In this case, the CPI is calculated based on the quantities consumed in the base year (2020). If the price of carrots increases, consumers m...
Read MoreUse the following table to answer the question. The table shows the prices and the quantities consumed in Vegetarian Country. Suppose the base year is 2020. Also, suppose that 2020 is the year the typical consumption basket was determined, so the quantities consumed in 2020 are the only quantities needed to calculate the CPI in each year.
| Year | Price of Carrots | Quantity of Carrots | Price of Celery | Quantity of Celery |
| 2020 | $2.00 | 100 | $1.00 | 100 |
| 2021 | 2.50 | 90 | 0.90 | 120 |
| 2022 | 2.75 | 105 | 1.00 | 130 |
What is the inflation rate for 2022?
rom the previous calculations:CPI in 2021 = 113.3CPI in 2022 = 125Now, calculate the inflation rate for 2022:Inflation Rate in 2022=125−113.3113.3×100=11.7113.3×100≈10.3%\text{Inflation Rate in 2022} = \frac{125 - 113.3}{113.3} \times 100 = \frac{11.7}{113.3} \times 100 \approx 10.3\%...
Read MoreUse the following table to answer the question. The table shows the prices and the quantities consumed in Vegetarian Country. Suppose the base year is 2020. Also, suppose that 2020 is the year the typical consumption basket was determined, so the quantities consumed in 2020 are the only quantities needed to calculate the CPI in each year.
| Year | Price of Carrots | Quantity of Carrots | Price of Celery | Quantity of Celery |
| 2020 | $2.00 | 100 | $1.00 | 100 |
| 2021 | 2.50 | 90 | 0.90 | 120 |
| 2022 | 2.75 | 105 | 1.00 | 130 |
What is the inflation rate for 2021?
Inflation Rate in 2021=113.3−100100×100=13.3100×100=13.3%\text{Inflation Rate in 2021} = \frac{113.3 - 100}{100} \times 100 = \frac{13.3}{100} \times 100 = 13.3\%Inflation Rate in 2021=100113.3−100×100=10013.3×100=13.3%Final Answer:d. 13.3...
Read MoreUse the following table to answer the question. The table shows the prices and the quantities consumed in Vegetarian Country. Suppose the base year is 2020. Also, suppose that 2020 is the year the typical consumption basket was determined, so the quantities consumed in 2020 are the only quantities needed to calculate the CPI in each year.
| Year | Price of Carrots | Quantity of Carrots | Price of Celery | Quantity of Celery |
| 2020 | $2.00 | 100 | $1.00 | 100 |
| 2021 | 2.50 | 90 | 0.90 | 120 |
| 2022 | 2.75 | 105 | 1.00 | 130 |
What are the values of the CPI in 2020, 2021, and 2022, respectively?
Step 1: Calculate the cost of the basket in the base year (2020)Price of Carrots in 2020 = $2.00Price of Celery in 2020 = $1.00Quantities of Carrots and Celery (from 2020) = 100 for bothCost of Basket in 2020=(2.00×100)+(1.00×100)=200+100=300\text{Cost of Basket in 2020} = (2.00 ...
Read MoreUse the following table to answer the question. The table shows the prices and the quantities consumed in Vegetarian Country. Suppose the base year is 2020. Also, suppose that 2020 is the year the typical consumption basket was determined, so the quantities consumed in 2020 are the only quantities needed to calculate the CPI in each year.
| Year | Price of Carrots | Quantity of Carrots | Price of Celery | Quantity of Celery |
| 2020 | $2.00 | 100 | $1.00 | 100 |
| 2021 | 2.50 | 90 | 0.90 | 120 |
| 2022 | 2.75 | 105 | 1.00 | 130 |
What is the value of the basket in the base year?
Step 1: Calculate the value of carrots in 2020Value of Carrots=2.00×100=200\text{Value of Carrots} = 2.00 \times 100 = 200Step 2: Calculate the value of celery in 2020Value of Celery=1.00×100=100Step 3: Calculate the total value of the basket in 2020Total Basket Value=2...
Read Morea. substitution bias...
Read Morec. products purchased by the typical consumer...
Read Moree. An increase in the price of BMW automobiles produced in Germany and sold in the United States...
Read MoreSubstituting the given values:Inflation Rate=130.7−124.0124.0×100=6.7124.0×100≈5.4%\text{Inflation Rate} = \frac{130.7 - 124.0}{124.0} \times 100 = \frac{6.7}{124.0} \times 100 \approx 5.4\%...
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