Answer to Question #215260 in Microeconomics for Steven

Question

Captain America as a captain in the US Army during World War II earned around $4,800 annually in 1944. While in 2021, as he is still a captain of the US Army, he earns $52,596 per year. Suppose the price index was 17.6 in 1944. The price index in 2020 is 1470.7% of that in 1944.

a. What is the price index in 2020?

b. How much does the Captain America's pay in 1944 worth in terms of 2021's price?

Answer 1

1) The price index in 2020 is 258.8432

2) With his earlier pay, he can now only buy 18.54 units of goods. In 1944, he could buy 272.93 units for $4800. But now, with $4800, he can only buy 18.54 units.

We are provided with the following information:

Year Income Price Index

1944 $4,800 17.6

2020 $52,596 258.8432

The price index tells us the change in price over time for a basket of goods.

1) Price index now = 17.4 * 1470.7% = 258.8432

2) Price index = (Cost of goods in the year now / Cost of good

s in the year 1944 ) * 100

We are given that in the year 1944, Captain America earned $4800, and the price index was 17.6.

So in simple terms, it means that the price of goods was 17.6, and he could buy 272.73 units of it.

Now according to the current year, the price of goods can be said to be 258.8432. So now, Captain America can buy 18.54 units of the same good with his income of $4800.

Year Income Price Quantity

1944 $4,800 17.6 272.73

2020 $4,800 258.8432

18.54