Lecture 3-3

Lecture 3-3 - Lecture 3/3/09 Real vs. Nominal Prices CPI...

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Marginal Utility Q P Total Utility Q P Lecture 3/3/09 Real vs. Nominal Prices CPI 2004 (using 2003 as BY) = ($120)(100) ($4)(20) ($2)(50) (Scale factor) ($100)(100) + ($5)(20) + ($1)(50) = (12180/10150)(100) = 1.2 X 100 = 120 ((120-100)/(100)) X 100 = 20% College Tuition (private school) College Tuition (private) Nomina l CPI (1967 BY) Real (1967 $) 1973 $5,000 133.1 $3,757 2004 $34,000 565.8 $6,009 *Ratio of 2004 nominal/1973 nominal = 6.8; ratio of 2004 real/1973 real = 1.6 Real = (5,000/133.1) X 100 = $3,757 = (34,000/565.8) X 100 = $6,009 Nomina l CPI (1967 BY) CPI (1973 BY) Real (1973 $) 1973 $5,000 133.1 100 $5,000 2004 $34,000 565.8 425 $8,000 *Ratio of real 2004/real 1973 = 1.6 *Ratio of real prices always the same
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Nomina l CPI (1967 BY) CPI (2004 BY) Real (2004 $) 1973 $5,000 133.1 23.5 $21,277 2004 $34,000 565.8 100 $34,000 *Ratio of real 2004/real 1973 = 1.6 *So, the real price of private school colleges has increased 60% during this time period
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Lecture 3-3 - Lecture 3/3/09 Real vs. Nominal Prices CPI...

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