homework2spring2007 - Economics 302 Spring 2007 Homework#2...

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Economics 302 Spring 2007 Homework #2 Due Tuesday, February 20 Homework will be graded for content as well as neatness. Sloppy or illegible work will not receive full credit. 1. Consider an economy that consists of two consumers and one firm. The firm produces goods using machines and oil. In contrast, consumers consume cheeseballs and television sets. Use the aggregate data below (and Excel) to answer the following questions: Data: Year Oil Machines Cheeseballs Televisions 2003 $45/barrel 210 $ 2.50 $ 310 $ 210 barrels 10 10 3 2004 $62/barrel 220 $ 2.70 $ 305 $ 225 barrels 12 8 2 2005 $82/barrel 230 $ 3.10 $ 300 $ 201 barrels 15 9 1 2006 $90/barrel 240 $ 3.30 $ 297 $ 195 barrels 10 8 2 PRICE AND AGGREGATE QUANTITIES a. Construct a Consumer Price Index for each year of the sample using 2003 as the base year. In doing so, be explicit as to what your market basket is (i.e., the market basket of the “typical”or “average” consumer). For the sake of this example you will assume that each consumer ends up consuming half of the total production.
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