MCQ for Economics JUNE 2010 Paper 1 Question 23

[arvind0708]

23 The average consumer divides his expenditure between food, accommodation and clothing in the
ratio 5 : 3 : 2.
During the course of a year, the price of food rises by 10 %, the price of accommodation remains
constant and the price of clothing falls by 5 %.
What is the increase in the Consumer Price Index over the year?
A 2.5 % B 4 % C 5 % D 6 %'

how to get the answer.

 

[nirajgrg]

Suppose the CPI to be 100. So food=50, accommodation=30 and clothing=20
now 10% rise in food means food= 50 + (10% of 50) = 55
accomodation remains constant = 30
5% fall in clothing means clothing = 20 - (5% of 20) = 19
new CPI = 55+30+19 = 104
hence there is an increase in CPI by 4 %