1
Eco 405
Assignment 1 (Due Jan. 28, 2008, Monday)
1.
The following table shows the average retail price of butter and the Consumer Price
Index from 1980 to 2001.
ˇ
1980
1985
1990
1995
2000
2001
CPI
100
130.58
158.62
184.95
208.98
214.93
Retail Price of butter
$1.88
$2.12
$1.99
$1.61
$2.52
$3.30
(salted, grade AA, per lb.)
a.
Calculate
the
real
price
of
butter
in
1980
dollars.
Has
the
real
price
increased/decreased/stayed the same since 1980?
Real price of butter in year X =
CPI
1980
CPI
year X
*
nominal price in year X
.
1980
1985
1990
1995
2000
2001
$1.88
$1.62
$1.25
$0.87
$1.21
$1.54
Since 1980 the real price of butter has decreased.
b.
What is the percentage change in the real price (1980 dollars) from 1980 to 2001?
Percentage change in real price from 1980 to 2001 =
1.54

1.88
1.88
= 
0.18
= 
18%
.
c.
Convert the CPI into 1990 = 100 and determine the real price of butter in 1990 dollars.
To convert the CPI into 1990=100, divide the CPI for each year by the CPI for 1990.
Use the formula from part (a) and the new CPI numbers below to find the real price of
milk.
New CPI
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 Spring '08
 Mingaling
 Supply And Demand, retail price, real price

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