Use the following to answer questions:
-(Table: Peanut Butter and Jelly)Use 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 2014?
A) 122.5
B) 111.25
C) 90
D) 81.6

Question

Use the following to answer questions: 
-(Table: Peanut Butter and Jelly)Use 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 2014?
A) 122.5 
B) 111.25 
C) 90 
D) 81.6

Quizplus · Accepted Answer

To calculate the price index, we need to first find the total cost of the market basket in the base year and the current year. In the base year (2012), the total cost would be:
(20 jars of peanut butter x $2.50 per jar) + (10 jars of jelly x $3.00 per jar) = $70
In 2014, the total cost would be:
(20 jars of peanut butter x $3.00 per jar) + (10 jars of jelly x $3.60 per jar) = $96
Now we can calculate the price index using the formula:
(price of market basket in current year / price of market basket in base year) x 100
($96 / $70) x 100 = 137.14
Therefore, the value of the price index in 2014 is 137.14.

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