Essentials of Economics 7th Edition by Gregory Mankiw

Exercise 11

Suppose that people consume only three goods, as shown in this table:

a. What is the percentage change in the price of each of the three goods?
b. Using a method similar to the consumer price index, compute the percentage change in the overall price level.
c. If you were to learn that a bottle of Gatorade increased in size from 2014 to 2015, should that information affect your calculation of the inflation rate? If so, how?
d. If you were to learn that Gatorade introduced new flavors in 2015, should that information affect your calculation of the inflation rate? If so, how?