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Suppose that people consume only three goods as shown in this table Bottles of Tennis Balls Golf Balls Gatorade 2017 price

Suppose that people consume only three goods, as shown in this table:

Bottles of

Tennis Balls Golf Balls Gatorade

2017 price………………$2…………………$4……………$1

2017 quantity…………100…………………100………….200

2018 price………………$2………………….$6……………$2

2018 quantity…………100…………………100…………200

a. What is the percentage change in the price of each of the three goods?

b. Using a method similar to the CPI, compute the percentage change in the overall price level.

c. If you were to learn that a bottle of Gatorade increased in size from 2017 to 2018, should that information affect your calculation of the inflation rate? If so, how?

d. If you were to learn that Gatorade introduced new flavors in 2018, should that information affect your calculation of the inflation rate? If so, how?

May 01 2020 View more View Less

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