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ECON 105

Does a higher wage buy you more?

Build a price index and use inflation to compare wages, interest and purchasing power. Move the examples in Learn, then work through ten questions in Solve.

Building a price index · Step 1 of 12

Start with a basket, not a single price

The same basket in three years
ItemQuantityBase priceMiddle priceLast price
Bread8$3$3.30$3.60
Soap4$5$5.50$6
Basket costs in Northland dollars
Base: total $44
BreadSoap
Bread: $24Soap: $20
Base, total $44; Bread $24, Soap $20
Northland is an invented economy whose example consumer basket holds bread and soap. Keep the quantities fixed while comparing years, so buying more goods does not look like higher prices. Choose the basket once, then price that same basket in every year.
Try it: Change the loaf count. The same count appears in all three years.
Loaves in the fixed basket8
Loaves
8
Soap bars
4
Base cost
$44
Basket cost = Σ (fixed quantity × price).
Base cost = (8 × $3) + (4 × $5) = $44.
Check yourself
Why hold the quantities fixed?

Exam coming up and inflation still feels confusing?

Bring your problem sets. We work through them together until every type feels routine.

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