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Part 1: Prices Then and Now DIRECTIONS: Each question lists an item that has been on sale for several decades, along with an old price
Part 1: Prices Then and Now DIRECTIONS: Each question lists an item that has been on sale for several decades, along with an "old" price and a current price. Use your knowledge of the Consumer Price Index (CPI) and inflation to determine if the item is cheaper or more expensive today (in real terms). The first problem is an example of how to solve each one. CHEAPER OR MORE EXPENSIVE TODAY? 1) The average price of one gallon of unleaded gasoline in 1980 was $1.25. That price has risen to an average of $3.53 in 2011. If the CPI was 77.8 in 1980 and is 220.2 in 2011, is the price of one gallon of unleaded gasoline in 2011 cheaper or more expensive than it was in 1980 (in real terms)? (Use these steps to answer each question including the first) STEP 1: Find the inflation rate using the following formula New CPI - Old CPI Inflation Rate - Old CPI STEP 2: Find the real value of the old price (in terms of 201 1 dollars) using this formula. 1980 Price in 2011 Dollars = 1980 Price + (1980 Price x Inflation Rate) STEP 3: Determine if the 201 1 price is cheaper or more expensive than the real price from 1980. 2) The price of a 2-liter bottle of Pepsi@ in 1985 was $0.89. That price has risen to $1.99 in 2013. If the CPI was 105.5 in 1985 and is 230.3 in 2013, is the price of Pepsi@ in 2013 cheaper or more expensive than it was in 1985 (in real terms)? 3) The price of a Hershey's@ chocolate bar (1.55 oz) in 1969 was $0.10
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