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

Years Tennis Balls Golf Balls Bottle of Gatorade

2006 Price $2 $4 $1

Quantity 100 100 200

2007 Price $2 $6 $2

Quantity 100 100 200

(a)What is the percentage change in the price of each of the three goods?

(b)Using a method similar to the consumer price index, compute the percentage change in the overall price level.

(c)If you were to learn that a bottle of Gatorade increased in size from 2006 and 2007, should that information affect your calculation of the inflation rate? If so, how?

(d)If you were to learn that Gatorade introduced new flavours in 2007, should that information affect your calculation of the inflation rate? If so, how?