G-mart

Hi there! Welcome to the galactic marketplace...

I'm Smith, the storekeeper here. Let me know if you require any assistance!

Food Items

[$4]

Consumed as a staple food by most galactic residents on a daily basis. Also known on Earth as the 'Donut'

[$12]

An addictive, caffeinated beverage known to enhance visual and mental capacities. Banned in the Eastern Galactic Sector.

[$100]

A vitamin-enriched cake with high nutritional content. Mainly consumed by upper-class life forms

The table below shows the quantity of each item consumed by a typical galactic household. It also shows the prices of these items one year ago.

The consumer price index measures the relative change in price of a basket of goods consumed by a typical household.

Cost of basket of goods last year = (3.60 x 50) + (11.80 x 20) + (94.00 x 2)

= $604

Cost of basket of goods this year = (4.00 x 50) + (12.00 x 20) + (100 x 2)

= $640

CPI = 640/604

= 1.06

The inflation rate can be calculated by the % change in CPI. The CPI of the base year is 1.00

Last year's CPI: 1.00

This year's CPI: 1.06

Inflation rate = (1.06 - 1.00)/1.00

= 6%

Substitution bias: As prices rise, consumers tend to switch their consumption to substitute goods
Quality adjustment bias: Improvements in the quality of products associated with an increase in price are not accounted for.