Question

Suppose the residents of Vegopia spend all of their income on cauliflower, broccoli, and carrots. In 2006, they buy 100 heads of cauliflower for $2 each, 50 bunches of broccoli for $1.50 each, and 500 carrots for $0.10 each. In 2007, they buy 100 heads of cauliflower for $3 each, 50 bunches of broccoli for $1.50 each, and 500 carrots for $0.20 each.

a. Calculate the price of the basket for each year.
b. Using 2006 as the base year, calculate the CPI for each year.
c. What is the inflation rate for 2007?