ECO402 Assignment 1 Solution and Discussion

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SEMESTER FALL 2019
MICROECONOMICS (ECO402)
ASSIGNMENT
DUE DATE: 27TH NOVEMBER, 2019 MARKS: 15
The Case:
The high cost of a nutritious diet can worsen nutrition outcomes, especially in low-income households. Vegetables are an important part of human diet due to the provision of vitamins, minerals, proteins, and carbohydrates. In Pakistan, Consumer Price Index (CPI) is used to reveal the level of Inflation. The monthly price review shows the prices of 53 items in 18 major cities of Pakistan. At present, the increase in the price of vegetables has affected the domestic budget. Tomatoes, onions, and vegetable ghee are inevitable food ingredient in the cooking. The information about their nominal prices in Faisalabad and CPI from year 2017 to year 2019 is giver below:
Items Unit Tomato kg
Onion kg
Vegetable Ghee
Year
Oct -2017 Oct -2018 Oct -2019 Oct -2017 Oct -2018 Oct -2019 Oct -2017 Oct -2018 Oct -2019
Nominal Price in Faisalabad 113.75 73.13 92.00 81.88 36.88 78.00 135.88 144.63 178.85
CPI Real Price
337.71 ? 240.62 ? 210.34 ? 491.92 ? 216.58 ? 464.37 ? 143.26 ? 148.48 ? 173.41 ?
kg
Data Source: Monthly review on price indices. Statistics Division, Government of Pakistan
Requirements:
Keeping in mind the above scenario, solve the following questions.
a. By assuming Oct-2017 as base year, find real price of tomato, onion and vegetable ghee in each year.
b. If base year bundle have 5 kg tomato, 5 kg onion and 3 kg vegetable ghee than find Laspeyres index by assuming oct-2017 as base year and oct-2019 as current year.
Marks: (9+6)

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