Chapter 24 - Part VIII - Measuring the Cost of Living - Problems and Applications - Page 520: 3

a) tennis balls: no price change golf balls: 50% increase bottles of Gatorade: 100% increase b) 50% increase c) Yes, that would affect the inflation rate calculation. The calculation of the inflation rate is based on the same basket of goods (with no changes to the basket of goods). The increased size of the bottles of gatorade affects the basket of goods, so an inflation rate cannot be accurate if it is based on two different sizes of gatorade. d) This information should not affect the calculation of the inflation rate. However, the new flavor would offer a new good to the market (and should be noted as such).

a) percentage change = (new price - old price)*100/new price tennis balls: $(2-2)*100/2$ $0*100/2$ $0*100$ golf balls: $(6-4)*100/4$ $2*100/4$ $200/4$ $50$ bottles of gatorade: $(2-1)*100/1$ $1*100/1$ $100/1$ $100$ b) 2014 basket of goods: 100 tennis balls at 2 dollars each 100 golf balls at 4 dollars each 200 bottles of gatorade at 1 dollar each $(100*2+100*4+200*1)$ $(200+400+200)$ $800$ 2015 basket of goods: 100 tennis balls at 2 dollars each 100 golf balls at 6 dollars each 200 bottles of gatorade at 2 dollar each $100*2+100*6+200*2$ $200+600+400$ $1200$ Overall price increase $(1200-800)/800*100$ $400/800*100$ $4/8*100$ $400/8$ $50$% increase