Consumer price index as a measure of the cost of living

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Reference no: EM13815976

In 1970, Lyle bought a hand calculator for $200. The calculator was more accurate in its four functions of addition, subtraction, multiplication, and division than was Lyle’s $35 slide rule. In 1990, Lyle could not buy a calculator, which could only perform four functions. The simplest calculator he could fine cost $5, and was much superior to his 1970 calculator. The CPI in 1970 was 100, and in 1990 it was 250.

(i) Based on the CPI, what was the value of the 1990 calculator in 1970 dollars?

(ii) By how much had the price of the calculator fallen in real terms from 1970 to 1990?

(iii) What problems in the use of the consumer price index as a measure of the cost of living does the above illustrate?

Reference no: EM13815976

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