Respuesta :
Answer:
A) change in the cost of eating index = 20% increase
B) Suppose that consumers are completely indifferent between two chickens and one ham. For this example, how large is the substitution bias in the official "cost-of-eating" index?
The INCREASE in the cost-of-eating index is 18 %.
The OVERESTIMATE of inflation in the cost of eating reflects substitution bias.
Explanation:
2015
product units unit cost total
chickens 30 $4 $120
hams 10 $5 $50
steaks 10 $8 $80
total $250
2016
product units unit cost total
chickens 30 $5 $150
hams 10 $7 $70
steaks 10 $8 $80
total $300
A) ($300 - $250) / $250 = 20%
B)
if consumers are indifferent for 2 chickens per 1 ham, then the new basket should be assuming consumers will purchase the cheapest option:
2016
product units unit cost total
hams 25 $7 $175
steaks 10 $8 $80
total $255
the increase in inflation would have been = ($255 - $250) / $250 = 2%
the substitution bias = reported inflation - real inflation = 20% - 2% = 18%
A) The change within the cost of eating index is = 20% increase
When The INCREASE within the cost-of-eating index is eighteen %.
Then The OVERESTIMATE of inflation within the cost of eating reflects substitution bias.
Cost of index
Part: A
2015: product units cost total
chickens 30 $4 $12
hams 10 $5 $50
steaks 10 $8 $80
total = $250
2016: product units cost total
chickens 30 $5 $150
hams 10 $7 $7
steaks 10 $8 $80
total = $300
A) ($300 - $250) / $250 = 20%
Part: B) if consumers are indifferent for two chickens per 1 ham, then the new basket should be assuming consumers will purchase the most cost effective option:
2016: product units cost total
hams 25 $7 $175
steaks 10 $8 $80
total = $255
the increase in inflation would are = ($255 - $250) / $250 = 2%
the substitution bias = reported inflation - real inflation = 20% - 2% = 18%
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