Assume the market basket for the consumer price index has two products-bread and milk-with the following values in 2013 and 2018 for price and quantity: The Consumer Price Index for 2018 equals : A. 118 B. 116 C. 86 D. 85

E. None of the above

Explanation:

Table 4

Base Year (2013) 2018 2013 2018

Product Quantity Price Price Total Amount Total Amount

Milk 50 $1.20 $1.50 $60 $75

Bread 100 $1.00 $1.10 $100 $110

Therefore CPI for 2018 = $75 + $110 = $185

B) 116

Explanation:

2013 2018

Product Quantity Price Price

Milk 50 $1.20 $1.50

Bread 100 $1.00 $1.10

price of CPI basket 2013 = (50 x $1.20) + (100 x $1) = $160

price of CPI basket 2018 = (50 x $1.50) + (100 x $1.10) = $185

CPI 2018 = ($185 / $160) x 100 = 115.6 ≈ 116

The CPI measures the price level of a basket of goods compared to a base year, in this case the base year was 2013.