Table 24-3

Question

The following table lists the per gallon prices of gas and milk for the months of April, May, and June. Assume that the typical consumer buys 60 gallons of gas and 4 gallons of milk each month, and that April is the base period.
Month

Price of Gas

(Dollars per gallon)


Price of Milk

(Dollars per gallon)
April 2.00 3.50
May 3.50 3.52
June 3.85 3.58

Refer to Table 24-3. What is the consumer price index for May?
a. 167
b. 132
c. 60
d. 123

Answer 1

To calculate the consumer price index (CPI) for May, you need to follow these steps:

1. Determine the total cost of the market basket for the base period (April):

   • Gas: 60 gallons x $2.00/gallon = $120
   • Milk: 4 gallons x $3.50/gallon = $14
   • Total cost in April = $120 + $14 = $134

2. Determine the total cost of the market basket for May:

   • Gas: 60 gallons x $3.50/gallon = $210
   • Milk: 4 gallons x $3.52/gallon = $14.08
   • Total cost in May = $210 + $14.08 = $224.08

3. Calculate the CPI for May using the formula: \[ \text{CPI} = \left( \frac{\text{Cost of market basket in current year}}{\text{Cost of market basket in base year}} \right) \times 100 \] \[ \text{CPI for May} = \left( \frac{224.08}{134} \right) \times 100 \approx 167.02 \]

Thus, rounding down to a whole number, the CPI for May is approximately 167.

Therefore, the answer is: a. 167