Ask Question
27 May, 13:12

Assume that households consume only hot dogs and soda; the average household consumes 12 hotdogs and 20 bottles of soda. In 1995, a hot dog was $0.90 each and soda $0.50 each. In 2003, hotdog price went up to $1.25, and soda price went up to $1.00. If 2003 is the base year, then the price index in 1995 would be:

+1
Answers (1)
  1. 27 May, 13:26
    0
    The price index in 1995 would be $59.4

    Explanation:

    In order to calculate the price index in 1995 we would have to calculate the following formula:

    price index in 1995 = (Market basket at current year prices / Market basket at base year prices) * 100

    Market basket at current year prices=12 hotdogs*price each hotdog+20 bottles of soda*price each bottes of soda

    Market basket at current year prices=12 hotdogs*0.9+20 bottles of soda*0.5

    Market basket at current year prices=$20.8

    Market basket at base year prices = 12*1.25+20*1

    Market basket at base year prices=$35

    Therefore, price index in 1995 = ($20.8/$35) * 100

    price index in 1995=$59.4

    The price index in 1995 would be $59.4
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “Assume that households consume only hot dogs and soda; the average household consumes 12 hotdogs and 20 bottles of soda. In 1995, a hot dog ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers