Problems and Applications Q3

Suppose that people consume only three goods, as shown in this table:

	Tennis Balls	Golf Balls	Bottles of Gatorade
2020
Price	$2	$4	$2
Quantity	100	50	300
2021
Price	$4	$5	$3
Quantity	100	50	300

Complete the following table by computing the percentage change in price for each of the three goods.

	Tennis Balls	Golf Balls	Bottles of Gatorade
Percentage Change

Using a method similar to that used to calculate the consumer price index, the percentage change in the overall price level is

.

True or False: If you were to learn that a bottle of Gatorade increased in size from 2020 to 2021, that information would lower your estimation of the inflation rate.

True

False

True or False: If you were to learn that Gatorade introduced new flavors in 2021, that would imply that the inflation rate you estimated is understated.

True

False