1. Section 3D Index Numbers Pages 182-191

2. Index Numbers An provides a simple way to compare measurements made at different times or in different places. The value at one particular time (or place) must be chosen as the reference value. The index number for any other time (or An index number provides a simple way to compare measurements made at different times or in different places. The value at one particular time (or place) must be chosen as the reference value. The index number for any other time (or place) is place) is 3-D

3. Average Gasoline Prices (per gallon) 3-D YearPrice Price as a Percentage of 1975 Price Price Index 1975 = 100 195529.1¢51.3%51.3 196531.2¢55.0%55.0 197556.7¢100.0%100.0 1985119.6¢210.9%210.9 1995120.5¢212.5%212.5 2000155.0 ¢273.4%273.4 2005238.0¢419.8%419.8 Where did these numbers come from? - percent as a fraction based on a reference value

4. Gasoline Price Index 3-D YearPrice Price Index 1975 = 100 Price Index 1985 = 100 1955 29.1¢ 51.3 1965 31.2¢ 55.0 1975 56.7¢ 100.0 1985 119.6¢ 210.9 1995 120.5¢ 212.5 2000 155.0¢ 273.4 2005 238.0¢ 419.8 Complete the Gasoline Price Index using the 1985 price as the reference value

5. Year Price Index 1975 = 100 195551.3 196555.0 1975100.0 1985210.9 1995212.5 2000273.4 2005419.8 The 1955 price is 51.3 percent of the 1975 price. The 1965 price is 55.0 percent of the 1975 price. The 1975 price is 100 percent of the 1975 price. The 1985 price is 210.9 percent of the 1975 price. The 1995 price is 212.5 percent of the 1975 price. The 2000 price is 273.4 percent of the 1975 price. What do these numbers mean? Gasoline Price Index

6. are primarily used for COMPARISONS Index numbers are primarily used for COMPARISONS 3-D Ex2/183 Suppose it cost $7.00 to fill a gas tank in 1975. How much would it cost to fill the same tank in 1995? Price index for 1995 is 212.5 The 1995 gas cost is 212.5% of the1975 gas cost. P 1995 = 212.5% x P 1975 = 2.125 x $7.00 = $14.875 = $14.88

7. Ex2/184 Suppose it cost $20.00 to fill a gas tank in 1995. How much would it have cost to fill the tank in 1955? 3-D Price index for 1995 is 212.5 P 1995 = 2.125 x P 1975 $20 = 2.125 x P 1975 $20/2.125 = P 1975 $9.41 = P 1975 Price index for 1955 is 51.3 P 1955 =.513 x P 1975 P 1955 =.513 x $9.41 P 1955 = $4.83 So the tank cost in 1955 is $4.83

8. Price index for 1995 is 212.5 so P 1995 = 212.5% x P 1975 Price index for 1955 is 51.3 so P 1955 = 51.3% x P 1975 3-D Ex2/184 Suppose it cost $20.00 to fill a gas tank in 1995. How much would it have cost to fill the tank in 1955?

9. To compare prices in year X and year Y, use the index numbers directly. Example. Suppose it cost $10 to fill a gas tank in 1985. How much would it have cost to fill the same tank in 1965?

10. Consumer Price Index (CPI) 3-D Intended to measure the overall rate of inflation Computed and reported monthly by U.S. Bureau of Labor Statistics More than 60,000 items each month Current reference value is an average of prices during 1982-1984

11. Consumer Price Index 3-D 2004 190.3

12. The 1973 price is 44.4 percent of the 1982-84 price. The 1974 price is 49.3 percent of the 1982-84 price. The 1983 price is 99.6 percent of the 1982-84 price. The 1991 price is 136.2 percent of the 1982-84 price. The 2000 price is 172.2 percent of the 1982-84 price.

13. Consumer Price Index (CPI) 3-D Pg186: How do “today’s” prices compare to those in 1986. Prices ‘today’ are about 1.736 times what they were in 1986.

14. Consumer Price Index (CPI) 3-D ex4/186 If you were making $30,000 in 1995, how much would you have needed in 2002 to maintain the same standard of living? [ Assume the average price of your typical purchases has risen at the same rate as the CPI.] P 2002 = (179.9/152.4) x ($30000) = $35413.38 To maintain the 1995 standard of living, you would have needed to make $35,413,38 in 2002,

15. More Practice 21/193 A loaf of bread cost $0.75 in 1979. What was its price in 2000 dollars? 23/193 23/193 Admission to a movie cost $7.00 in 2000. What was its price in 1975 dollars? 25/193 25/193 What was the purchasing power of $1 in 1973 in terms of 2002 dollars? 3-D

16. Rate of Inflation The refers to the relative change in the CPI from one year to the next. The rate of inflation refers to the relative change in the CPI from one year to the next. 3-D

17. Rate of Inflation 20/192 Find the rate of inflation from 2000 to 2001: 3-D

18. Adjusting prices for inflation pg187 Compare the 1981 gas price of $1.47 / gallon to today’s price of $2.38 / gallon ( use 2004 CPI) Relative change Inflation rate (1981 to 2004) = Gas prices from 1981 to today have increased by 61.9% The inflation rate from 1981 to today is 109.35%. Thus today’s gas prices have not kept up with inflation! 3-D

19. More Practice 31/193 Total spending on health care in the US rose from $80 billion in 1973 to $1.5 trillion in 2002. Compare this rise in health care spending to the overall rate of inflation as measured by the CPI. 33/193 The average cost of college (tuition, fees, room and board) at four-year private universities rose from $5900 in 1980 to $25100 in 2002. Calculate the relative change in cost from 1980 to 2002, and compare it to the overall rate of inflation as measured by the CPI. 3-D

20. Homework: Pages 192-193 # 14, 18, 19, 24, 26, 32, 34