Check Your Understanding

1. Question

   Consider Table 15.1 but suppose that the market basket is composed of 100 oranges, 50 grapefruit, and 200 lemons. How does this change the pre-frost and post-frost consumer price indexes? Explain. Generalize your answer to explain how the construction of the market basket affects the CPI.

2. Question

   For each of the following events, explain how the use of a 10-year-old market basket would bias measurements of price changes over the past decade.

   1. A typical family owns more cars than it would have a decade ago. Over that time, the average price of a car has increased more than the average prices of other goods.

   2. Virtually no households had tablet PCs a decade ago. Now many households have them, and their prices have been falling.

3. Question

   The consumer price index in the United States (base period 1982–1984) was 214.537 in 2009 and 218.056 in 2010. Calculate the inflation rate from 2009 to 2010.