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Table: Peanut Butter and Jelly

-(Table: Peanut Butter and Jelly) Look at the table Peanut Butter and Jelly. Suppose a market basket consists of 20 jars of peanut butter and 10 jars of jelly. If 2012 is the base year, what is the value of the price index in 2012?
A)0
B)90
C)100
D)111.25

Question

Use the following to answer questions :
Table: Peanut Butter and Jelly
 
-(Table: Peanut Butter and Jelly) Look at the table Peanut Butter and Jelly. Suppose a market basket consists of 20 jars of peanut butter and 10 jars of jelly. If 2012 is the base year, what is the value of the price index in 2012?
A)0 
B)90 
C)100 
D)111.25

Quizplus · Accepted Answer

We need to calculate the price index for 2012, which is the base year. Since the prices in the base year are given as 1, the price index for 2012 would be equal to the total cost of the market basket in 2012 divided by the total cost of the market basket in the base year (2012).
Total cost of the market basket in 2012 = (20*$3)+(10*$2) = $80
Total cost of the market basket in 2012 = (20*$3)+(10*$1.5) = $75
Price index = (total cost of basket in 2012/total cost of basket in 2012) *100 = (80/80)*100 = 100
Therefore, the answer is C.

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