Economics Cpi Market Quiz

The consumer price index measures the average of the prices by urban customers for a fixed market basket of consumer goods and services. This means that a specific set of goods and services is selected and the prices of these items are tracked over time to determine changes in the cost of living. The fixed market basket ensures consistency in the items being measured, allowing for accurate comparisons of price levels over time.

The inflation rate over this period can be calculated by finding the percentage increase in the price index. The price index has increased from 100 to 167, which is an increase of 67 points. To find the percentage increase, we divide this increase by the initial price index (100) and multiply by 100. Therefore, the inflation rate over this period is 67 percent.

The value of the CPI for the reference period is always 100 because the Consumer Price Index (CPI) is designed to measure the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. The reference period is set as the base period, which is assigned a value of 100. This allows for easy comparison of price changes over time, as any value above 100 indicates an increase in prices, while any value below 100 indicates a decrease in prices.

The formula for the CPI calculates the Consumer Price Index by dividing the cost of the CPI market basket at current period prices by the cost of the CPI market basket at base period prices, and then multiplying the result by 100. This formula allows for the comparison of price changes over time, as it measures the average price change of a fixed basket of goods and services.

If the price of beef rises and the price of chicken remains the same, Joe will buy more chicken and create a commodity substitution bias. This means that Joe will switch from buying beef to buying more chicken because it has become relatively cheaper compared to beef. The increase in the price of beef has made it less attractive to Joe, leading to a shift in his consumption pattern towards chicken. This change in consumption behavior introduces a bias in the calculation of the Consumer Price Index (CPI), as it does not account for the substitution effect and assumes that the consumer continues to purchase the same quantities of goods despite price changes.

Potential GDP refers to the level of real GDP that an economy can produce at full employment. It represents the maximum output that can be achieved when all resources are fully utilized. It is a measure of the economy's productive capacity and is often used as a benchmark for assessing the overall health and growth potential of an economy. Potential GDP takes into account the available labor force, capital stock, and technology. It is an important concept in macroeconomics as it helps policymakers understand the economy's long-term growth potential and make informed decisions to achieve full employment and sustainable economic growth.

The CPI (Consumer Price Index) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. In this case, the cost of the CPI market basket at the current period prices is $1000, while the cost at the base period prices is $250. To calculate the CPI, we divide the current period cost by the base period cost and multiply by 100. So, (1000/250) * 100 = 400. Therefore, the CPI is 400.

The correct answer is 10 Sodas and 10 DVDs. This can be determined by dividing the amount spent on sodas ($10) by the price of a soda ($1), which gives us 10 sodas. Similarly, dividing the amount spent on DVDs ($90) by the price of a DVD ($9), gives us 10 DVDs. Therefore, the CPI market basket for Beachland consumers consists of 10 sodas and 10 DVDs.

The production function graphs the relationship between Real GDP and the quantity of labor employed. This means that as the quantity of labor employed increases, the Real GDP also increases. The production function shows how the input of labor affects the output of goods and services in an economy. It helps to understand the relationship between the amount of labor used in production and the resulting level of economic output.

The correct answer is an iPod player relative to a walkman. The new goods bias in the calculation of the CPI refers to the fact that the CPI may not accurately capture changes in consumer preferences when new goods are introduced to the market. In this case, the introduction of the iPod player, which is a new and innovative product, may lead to a higher price increase compared to the older and more traditional walkman. This bias can result in an overestimation of inflation if the CPI does not account for the changing preferences of consumers towards newer goods.

If New Zealand is operating at potential GDP, it means that the economy is producing at its maximum sustainable level without causing inflationary pressures. In this case, there would only be frictional and structural unemployment present, as these types of unemployment are considered normal and unavoidable in any economy. On the other hand, there would be no inflation, as the economy is already operating at its full capacity. However, the statement about positive net exports is not necessarily true or related to potential GDP. Therefore, the correct answer is i only.

When the real wage rate is above the equilibrium wage rate, it means that employers are offering higher wages than what is considered the market equilibrium. This can lead to an excess supply of labor because more workers are willing to work at higher wages, creating a surplus of labor. This can happen when there is a mismatch between the demand for labor and the supply of labor, resulting in job rationing. Therefore, answer D is the correct explanation for the given answer.

The idea of diminishing returns states that as the quantity of labor increases, the additional output produced (Real GDP) will increase, but at a decreasing rate. This means that each additional unit of labor added will contribute less to the overall increase in Real GDP compared to the previous unit of labor. Therefore, Real GDP increases at a slower rate as the quantity of labor increases.