```Fixed Market Basket Price
Index
ο§ A fixed market basket price index is an index
number for the total cost of a fixed collection of
goods and services.
ο§ Instead of looking at one good, you will look at
a collection of goods that are consistent over
time.
I live in a cabin and I only buy salt, kerosene, and I hire a professional welder. Here are
my purchases in 1990 (my base period). The last column is how much I spent per
good/service.
Good or
Service
1990
Quantity
1990 Price
1990 Cost
Salt
100 pounds
\$0.50/pound
\$50.00
Kerosene
50 gallons
1.00/gallon
\$50.00
Welding
10 hours
14.00/hour
\$140.00
The total I spent was \$240.
I want to find my fixed market number for the year 2000 using the same quantities from
1990.
Here is the chart for 2000
Good or
Service
1990
Quantity
2000 Price
2000 Cost
Salt
100 pounds
\$0.80/pound
\$80.00
Kerosene
50 gallons
1.00/gallon
\$50.00
Welder
10 hours
23.00/hour
\$230.00
So the total I spent was \$360.
ο§ So find the index number of that now.
ο§ πΌππππ₯ ππ’ππππ =
360
240
&times; 100 = 150
ο§ So really that means the cost went up by 50%.
ο§ The index number tells us what was the percent increase or decrease of a
good/service over time.
Practice Problems
ο§ Page 326 # 5.48 (you need to add the oranges to the 1990s total price in
order to find the index number). 5.52