macrochapter24 - Rikki Norton Chapter 24 1. In a simple...

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Rikki Norton Chapter 24 1. In a simple economy, people consume only 2 goods, food and clothing. The market basket of goods used to compute the CPI consists of 50 units of food and 10 units of clothing. Food Clothing 2004 price per unit $4 $10 2005 price per unit $6 $20 a. What are the percentage increases in the price of food and the price of clothing? Food-50% Clothing-100% b. What is the percentage increase in the CPI? CPI Increase- 66.7% c. Do these price changes affect all consumers to the same extent? Explain. No, it doesn’t affect people who buy barely any clothing compared to the amount of food they buy, however people who buy more clothes then food would suffer to a more extreme extent. 2. Which is likely to have the larger effect on the CPI, a 2 percent increase in the price of food or a 3 percent increase in the price of diamond rings? Explain. The 2 percent increase in food prices will have a larger effect on the CPI because people do not go out and buy diamond rings very often and for some people it never happens. So therefore the 3 percent
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This note was uploaded on 03/14/2011 for the course POLSCI 1123 taught by Professor Thompson during the Spring '11 term at Oklahoma State.

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macrochapter24 - Rikki Norton Chapter 24 1. In a simple...

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