The Following Table Shows the Consumption Categories Used to Compute

question 31

Essay

The following table shows the consumption categories used to compute the consumer price index in a hypothetical economy, their weights as percentages in a typical consumer's total expenditure, and the price ratios relative to the base year.

a) Calculate the consumer price index in Year 1 and Year 2.
b) Calculate the inflation rate in Year 1 and Year 2.
c) Explain how the weights in column 2 were determined. Discuss the meaning of "Price of food."

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Definitions:

Knowledge Bias

A cognitive bias that occurs when an individual's knowledge or expertise in one area leads to overconfidence or errors in judgment in another area.

Marketing Communications

The use of various channels and tools in promoting and selling products or services, including advertising, sales promotion, public relations, and direct marketing.

Source Effects

The impact that the source of a message has on the credibility, persuasiveness, or effectiveness of the communication.

Special Message Conditions

These are specific circumstances or contexts in which the communication or marketing message's effectiveness may be enhanced or diminished.