Inflation is currently causing the cost of items to increase by about 2.5% per year. In 2009 a litre of gasoline costs approximately $0.90. What will it cost to fill a 60 litre gas tank 10 years from now. Round your answer to the nearest dollar. Name at least one thing other than inflation that determines the cost to the consumer of any article (not just gasoline).

Question

This is worth 5 marks and need some help answering it clearly and precisely. I was gonna use supply/demand but i don't know if that would work.

-Dan

Answer 1

Today it costs $54 to fill tank. In one year (per cent increase problem):
(x - 54)/54 = .025, so x = $55.35
in the next year:
(x - $55.35)/$55.35 = .025, so x = $56.73
Do this 8 more times, and you will get your answer: $69.12
I used an Excel worksheet to generate the answer. Not sure if there's a formula to solve this or not.

Answer 2

There is a formula, called the standard future value formula:
54 * (1 + .025)^10 = future value = $69.12