Table 23-4

The country of Caspir produces only cereal and milk. Quantities and prices of these goods for the last several years are shown in the following table. The base year is 2015.

Year Cereal Milk

Price

(Dollars per box)

Quantity

(Boxes of cereal)

Price

(Dollars per gallon)

Quantity

(Gallons)

2015 4.00 100 1.50 180
2016 4.00 120 2.00 200
2017 5.00 150 2.50 200
2018 6.00 180 3.50 240

Refer to Table 23-4. This country's inflation rate from 2016 to 2017 was

Question

Table 23-4

The country of Caspir produces only cereal and milk. Quantities and prices of these goods for the last several years are shown in the following table. The base year is 2015.

​

Year	Cereal	Milk

Price

(Dollars per box)

Quantity

(Boxes of cereal)

Price

(Dollars per gallon)

Quantity

(Gallons)

2015	4.00	100	1.50	180
2016	4.00	120	2.00	200
2017	5.00	150	2.50	200
2018	6.00	180	3.50	240

​

Refer to Table 23-4. This country's inflation rate from 2016 to 2017 was

BlackTom AI · Accepted Answer

We start by identifying the required method to measure inflation from 2016 to 2017 using Table 23-4 and the base year 2015.
Option restatement alongside the numbers: 2016 prices: cereal $4.00, milk $2.00; 2017 prices: cereal $5.00, milk $2.50. Base year quantities (2015): cereal 100 boxes, milk 180 gallons.
Step 1: Compute the cost of the base-year bundle in 2016.
- Cereal: 100 boxes × $4.00 = $400
- Milk: 180 gallons × $2.00 = $360
- Total cost in 2016 for base-year quantities = $400 + $360 = $760

Step 2: Compute the cost of the same base-year bundle in 2017.
- Cereal: 100 boxes × $5.00 = $500
- Milk: 180 gallons × $2.50 = $450
- Total cost in 2017 for base-year quantities = $500 + $450 = $950

Step 3: Form the price index (Laspeyres) using base-year quantities: Price index = (Cost in 2017 of base-year bundle) / (Cost in 2016 of base-year bundle) = $950 / $760 = 1.25.
Step 4: Convert the price index into an inflation rate: Inflation rate = (1.25 − 1) × 100% = 25.0%.
Now evaluate the given options:
- 23.1%: This would require a different weighting or a miscalculation of one component; the computed index above yields 25.0%. Thus 23.1% does not match the correct Laspeyres inflation measure for the base-year bundle.
- 25.0%: This matches the calculated inflation rate from the Laspeyres price index using base-year quantities, which is the standard method for inflation between two years when a fixed basket (base year) is used.
- 18.8%: This figure would arise from an alternative method or an incorrect combination of price changes or quantities; it does not align with the base-year-basket calculation.
- 26.1%: Similarly, this would suggest a different weighting or rounding error; it is not the result of the correct index computation described above.
In summary, the calculation relies on multiplying the base-year quantities by year-specific prices, summing for each year, forming the ratio, and subtracting one to get the percentage change. The only option that matches this process and result is 25.0%.

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