Rahul buys 90 kg of sugar and 5 pairs of shoes in a year. In the year 2000, the price of a kg of sugar was Rs. 10 and a pair of shoes was Rs. 100. Now suppose the prices of a kg of sugar and a pair of shoes have gone up to Rs. 15 and Rs. 120 in the year 2005. What is the Consumer Price Index?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → 139.29
Consumer Price Index (CPI): This is the index of prices of a given basket of commodities which are bought by the representative consumer. CPI is generally expressed in percentage terms. We have two years under consideration – one is the base year, the other is the current year. We calculate the cost of purchase of a given basket of commodities in the base year. We also calculate the cost of purchase of the same basket in the current year. Then we express the latter as a percentage of the former. This gives us the Consumer Price Index of the current year vis-´a-vis the base year.
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Base Year (2000):
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Sugar: 90 kg × ₹10 = ₹900
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Shoes: 5 pairs × ₹100 = ₹500
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Total base year cost = ₹900 + ₹500 = ₹1400
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Current Year (2005):
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Sugar: 90 kg × ₹15 = ₹1350
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Shoes: 5 pairs × ₹120 = ₹600
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Total current year cost = ₹1350 + ₹600 = ₹1950
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CPI= [(Total cost in current year) / (Total cost in base year)] * 100
= (1950 / 1400) * 100 = 139.29