Question

Calculate the simple aggregative price index and interpret it for the following:

$\begin{array}{ccc}\text{Commodities}& \text{1980 Price}& \text{2017 Price}\\ \text{Coffee (per cup)}& 0.20& 1.51\\ \text{Milk (per gallon)}& 1.60& 3.35\\ \text{Burger}& 0.44& 4.42\\ \text{Jeans}& 27& 63\\ \text{Movie ticket}& 1.92& 13\end{array}$

All prices are in dollars.

• A. The value of 173.68 suggests that the prices of the given commodities in 2017 have become 1.7368 times the prices in 1980
• B. The value of 273.68 suggests that the prices of the given commodities in 2017 have become 2.7368 times the prices in 1980
• C. The value of 273.68 suggests that the prices of the given commodities in 2017 have increased by 173.68% since 1980
• D. The value of 270.68 suggests that the prices of the given commodities in 2017 have become 2.7068 times the prices in 1980

Answer 1

Answer: (B), (C)

The correct options are
B

The value of 273.68 suggests that the prices of the given commodities in 2017 have become 2.7368 times the prices in 1980

C

The value of 273.68 suggests that the prices of the given commodities in 2017 have increased by 173.68% since 1980

Look at the table below:

$\begin{array}{ccc}\text{Commodities}& \text{1980 Prices}& \text{2017 Prices}\\ \text{Coffee (per cup)}& 0.20& 1.51\\ \text{Milk (per gallon)}& 1.60& 3.35\\ \text{Burger}& 0.44& 4.42\\ \text{Jeans}& 27& 63\\ \text{Movie ticket}& 1.92& 13\\ \text{Total}& 31.16& 85.28\end{array}$

$\sum P_{=}31.16,\sum P_1=85.28$
Simple aggregative price index $=\left(\frac{\sum P_1}{\sum P_0}\right)\times 100=\left(\frac{85.28}{31.16}\right)\ast 100=273.68$
The value of 273.68 suggests that the prices of the given commodities in 2017 have become 2.7368 times the prices in 1980.