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Solution to Ch.18 Exercises 27, 28, 33, & 34.

(27). Compute a simple price index:

|Item |Year 2000 |Year 2004 |Simple Price Index |

| |Price \$ |Price \$ | |

|Margarine(pound) |0.81 |0.89 |0.89/0.81*100=9.9 |

|Shortening(pound) |0.84 |0.94 |0.94/0.84*100=11.9 |

|Milk(1/2 gallon) |1.44 |1.43 |1.43/1.44*100=99.3 |

|Potato chips |2.91 |3.07 |3.07/2.91*100=5.5 |

P= Pt/Po*100

Where Pt refers to the price in the current period and Po is the price in the base period.

(28). Compute a simple aggregate price index.

P=∑Pt/∑Po*100

P= 0.89+0.94+1.43+3.07/0.81+0.84+1.44+2.91*100

P= 6.33/6*100

P=105.5

The simple aggregate index is 105.5. This means that the aggregate group of prices had increased 5.5 percent in the four-year period.

(33). Compute a simple price index for each of the three items.

|Part |Price |Price |Simple Price Index |

| |2000 |2004 | |

|RC-33 |0.50 |0.60 |0.60/0.50*100=20 |

|SM-14 |1.20 |0.90 |0.90/1.20*100=75 |

|WC-50 |0.85...