# ch24ak - Econ 2 Principles of Economics Chapter 24...

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Econ 2: Principles of Economics Chapter 24 Questions for Review 1. A 10% increase in the price of chicken has a greater effect on the consumer price index than a 10% increase in the price of caviar because chicken is a bigger part of the average consumer's market basket. 3. If the price of a Navy submarine rises, there is no effect on the consumer price index, because Navy submarines are not consumer goods. But the GDP price index is affected, because Navy submarines are included in GDP as a part of government purchases. 4. Because the overall price level doubled, but the price of the candy bar rose sixfold, the real price (the price adjusted for inflation) of the candy bar tripled. Problems and Applications 1. a. Find the price of each good in each year: Year Cauliflower Broccoli Carrots 2006 \$2 \$1.50 \$0.10 2007 \$3 \$1.50 \$0.20 b. If 2006 is the base year, the market basket used to compute the CPI is 100 heads of cauliflower, 50 bunches of broccoli, and 500 carrots. We must now calculate the cost of the market basket in each year: 2006: (100 x \$2) + (50 x \$1.50) + (500 x \$.10) = \$325
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