Answer to Question #142997 in Microeconomics for Beverly

Question

Your grandfather tells you that earned $.50 per hour at his job when he was a boy in 1929.
a. Given the CPI was 17.1 in 1929 and 184.0 in 2003, how much would have to make in 2003 to have the same real hourly wages?
b. You made $5.50 an hour working during 2003. Were you better off than your grandfather in terms of purchasing power? Explain.
c. Your grandfather also tells you that a soda $.05 in 1929, and you know a soda cost $.55 in 2003. You decide to use the price of a soda as the price index. How much would the 2003 "soda equivalent" of $.50 per hour in 1929 be?

Answer 1

$$Solution$$

a) 2003 CPI is, 184.0 and 1929 CP1 is 17., Therefore:

$\frac{184}{17.1}=\frac{x}{0.5}\\ x=\$5.38/hr$

b) Yes, $5.50 had more purchasing power than $.50 did in 1929.

c) $5.50 in 2003 would buy the same number of sodas(10) that $.50 would have bought in 1929.