Suppose a Consumer Buys 10 Units of Good X and 20

Essay

Suppose a consumer buys 10 units of good X and 20 units of good Y every year.The following table lists the prices of goods X and Y in the years 2005-2007.Assume that these two goods constitute the typical market basket.Calculate the price indices for these years with 2005 as the base year.Comment on the inflation picture for these years. $$\begin{array} { | c | c | c | } \hline \text { Year } & \text { Good } \mathbf { X } & \text { Good } Y \\\hline 2005 & \$ 3 & \$ 6 \\\hline 2006 & 4 & 7 \\\hline 2007 & 4.5 & 7.5 \\\hline\end{array}$$