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Consider a simple economy where the basket of goods used to calculate the CPI contains two items: shirts and pants. The basket consists of 3
shirts and 2 pairs of pants. Each item increases in price by $1 in year 2. Use this information to complete the table and calculate the CPI.
Year
Price of a Shirt Price of a pair of Pants
year 1
$25
$20
year 2
$ 26
$ 21
The CPI for year 2 is

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francocanacari

The CPI in year 1 was $ 115, while the CPI in year 2 was $ 120.

Since in a simple economy the basket of goods used to calculate the CPI contains two items, shirts and pants, and the basket consists of 3 shirts and 2 pairs of pants, and each item increases in price by $ 1 in year 2, knowing that the price of a shirt in year 1 is $ 25 and the price of a pant the same year is $ 20, to determine the CPI for year 1 and year 2 the following calculations must be performed:

  • CPI YEAR 1:  
  • 3 x 25 + 2 x 20 = X
  • 75 + 40 = X
  • 115 = X

  • CPI YEAR 2:  
  • 3 x 26 + 2 x 21 = X
  • 78 + 42 = X
  • 120 = X

Therefore, the CPI in year 1 was $ 115, while the CPI in year 2 was $ 120.

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