Lecture 3-3

# Lecture 3-3 - Lecture Real vs Nominal Prices CPI 2004(using...

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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 Real vs Nominal Prices CPI 2004(using...

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