Question

The prices of consumer goods do not always exactly follow the CPI. The following chart shows several consumer items, along with their respective prices in 1983 and today.

Item
Price in 1983 ($)
Current Price ($)
Pair of boots
67.45
126.85
Hair dryer
15.25
29.95
Box of tissues
1.15
2.25
Toaster
22.85
44.25

Using the prices shown on this chart, which of the following is a reasonable estimate of the current CPI?
a.
208
b.
195
c.
180
d.
173

Answer 1

Assume CPI = 100 in 1983. Compute each price ratio (today / 1983):

- Boots: 126.85 / 67.45 ≈ 1.88 (↑88%)
- Hair dryer: 29.95 / 15.25 ≈ 1.97 (↑97%)
- Tissues: 2.25 / 1.15 ≈ 1.96 (↑96%)
- Toaster: 44.25 / 22.85 ≈ 1.94 (↑94%)

Average ratio ≈ (1.88 + 1.97 + 1.96 + 1.94) / 4 ≈ 1.935 → CPI ≈ 194 (rounds to 195).

Answer: b. 195