ECO402 Microeconomics Assignment 1 Solution Fall 2014

1) Calculate cost of basket/expenditures of Ali in year 2011.

Solution:

Market basket at base period prices =80*10+55*32=2560

b) Calculate cost of basket/expenditures of Atif in year 2013.

Solution:

Market basket at current period prices =95*28+130*12=4220
c) How much adjustment in ideal cost of living is required by Atif to attain the same level of utility which Ali is getting?

Solution:

adjustment=4220-2560=1660

ideal cost of living index= 4220/2560 = 1.65

1660/2560 *100 = 64% increase in cost of living

d) Ideal cost of living index required by atif : 4220/2560=1.648

e) Graphically compare the costs of basket/expenditures borne by Ali and Atif to attain same utility.

Solution:
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