Question
A consumer has two goods in his consumptionbundle: bread and coffee. The current price of bread is $3.00 per loaf and the price of coffee
A consumer has two goods in his consumptionbundle: bread and coffee. The current price of bread is $3.00 per loaf and the price of coffee is $6.00 per cup.
This consumer currently buys 10 loaves of bread per week and 5 cups of coffee.
Suppose that the price of bread increases by 20% and the price of coffee increases by 10%
Using this current consumptionbundle, calculate the value of the CPI for this consumer. CPI= ? (enter your response rounded to two decimal places).
By how much would aconsumer's income need to change(in percentageterms) to compensate for these higherprices? % (enter your response as a percentage rounded to two decimal places).
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started