# Section3Df2007

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Published on November 7, 2007

Author: Margot

Source: authorstream.com

Section 3D Index Numbers:  Section 3D Index Numbers Pages 186-198 Index Numbers:  Index Numbers An index number provides a simple way to compare measurements made at different times or in different places. The value at one particular time (or place) must be chosen as the reference value. The index number for any other time (or place) is 3-D Average Gasoline Prices (per gallon):  Average Gasoline Prices (per gallon) 3-D Where did these numbers come from? - percent as a fraction based on a reference value Gasoline Price Index:  Gasoline Price Index 3-D Complete the Gasoline Price Index using the 1985 price as the reference value Slide5:  The 1955 price is 51.3 percent of the 1975 price. The 1965 price is 55.0 percent of the 1975 price. The 1975 price is 100 percent of the 1975 price. The 1985 price is 210.9 percent of the 1975 price. The 1995 price is 212.5 percent of the 1975 price. The 2000 price is 273.4 percent of the 1975 price. What do these numbers mean? Gasoline Price Index Slide6:  Index numbers are primarily used for COMPARISONS 3-D Ex2a/188 Suppose it cost \$7.00 to fill a gas tank in 1975. How much would it cost to fill the same tank in 2005? Price index for 2005 is 407.4 The 2005 gas cost is 407.4% of the1975 gas cost. P2005 = 407.4% x P1975 = 4.074 x \$7.00 = \$28.52 Slide7:  Ex2/184 Suppose it cost \$20.00 to fill a gas tank in 1995. How much would it have cost to fill the tank in 1955? 3-D Price index for 1995 is 212.5 P1995 = 2.125 x P1975 \$20 = 2.125 x P1975 \$20/2.125 = P1975 \$9.41 = P1975 Price index for 1955 is 51.3 P1955 = .513 x P1975 P1955 = .513 x \$9.41 P1955 = \$4.83 So the tank cost in 1955 is \$4.83 Slide8:  Price index for 1995 is 212.5 so P1995 = 212.5% x P1975 Price index for 1955 is 51.3 so P1955 = 51.3% x P1975 3-D Ex2/184 Suppose it cost \$20.00 to fill a gas tank in 1995. How much would it have cost to fill the tank in 1955? Slide9:  To compare prices in year X and year Y, use the index numbers directly. Example. Suppose it cost \$10 to fill a gas tank in 1985. How much would it have cost to fill the same tank in 1965? Consumer Price Index (CPI):  Consumer Price Index (CPI) 3-D Intended to measure the overall rate of inflation Computed and reported monthly by U.S. Bureau of Labor Statistics More than 60,000 items each month Current reference value is an average of prices during 1982-1984 Consumer Price Index:  Consumer Price Index 3-D 2003 184.0 2004 188.9 2005 195.3 Slide12:  The 1973 price is 44.4 percent of the 1982-84 price. The 1974 price is 49.3 percent of the 1982-84 price. The 1983 price is 99.6 percent of the 1982-84 price. The 1991 price is 136.2 percent of the 1982-84 price. The 2000 price is 172.2 percent of the 1982-84 price. Consumer Price Index (CPI):  Consumer Price Index (CPI) 3-D Pg186: How do 2005 prices compare to those in 1995. Prices in 2005 were about 1.28 times what they were in 1995. Consumer Price Index (CPI):  Consumer Price Index (CPI) 3-D ex4/190 If you were making \$30,000 in 2000, how much would you have needed in 2005 to maintain the same standard of living? [Assume the average price of your typical purchases has risen at the same rate as the CPI.] P2005 = (195.3/172.2) x (\$30000) = \$34020.00 To maintain the 2000 standard of living, you would have needed to make \$34,020 in 2005. More Practice:  More Practice 31/196 A loaf of bread cost \$0.75 in 1979. What was its price in 2004 dollars? 33/197 Admission to a movie cost \$7.00 in 2000. What was its price in 1975 dollars? 35/197 What was the purchasing power of \$1 in 1973 in terms of 2002 dollars? 3-D Rate of Inflation:  Rate of Inflation The rate of inflation refers to the relative change in the CPI from one year to the next. 3-D Rate of Inflation:  Rate of Inflation 30*/192 Find the rate of inflation from 2000 to 2001: 3-D Adjusting prices for inflation:  Adjusting prices for inflation pg187 Compare the 1981 gas price of \$1.47 / gallon to today’s price of \$2.38 / gallon ( use 2004 CPI) Relative change Inflation rate (1981 to 2004) = Gas prices from 1981 to today have increased by 61.9% The inflation rate from 1981 to today is 109.35%. Thus today’s gas prices have not kept up with inflation! 3-D More Practice:  More Practice 41/193 Total spending on health care in the US rose from \$80 billion in 1973 to \$1.8 trillion in 2004. Compare this rise in health care spending to the overall rate of inflation as measured by the CPI. 43/193 The average cost of college (tuition, fees, room and board) at four-year private universities rose from \$5900 in 1980 to \$27516 in 2004. Calculate the relative change in cost from 1980 to 2004, and compare it to the overall rate of inflation as measured by the CPI. 3-D Slide20:  Homework: Pages 196-197 # 24, 28, 30, 34, 36, 42, 44

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