Suppose the price of a fixed basket of goods is $500 in 2018 and $530 in 2022. If the price index in 2018 was 150, what is the price index in 2022 based on the fixed basket of goods?

To calculate the price index for 2022 based on a fixed basket of goods that costs $530 in 2022 and $500 in 2018 with an index of 150 in 2018, you multiply the ratio of the cost from 2022 to 2018 by the 2018 price index. The calculated price index for 2022 is 159.

Explanation:

The student is asking about how to calculate a price index for the year 2022 when given the price index for the year 2018 as well as the cost of a fixed basket of goods in both years. To find the price index for 2022, we use the Laspeyres price index formula which compares the cost of a fixed basket of goods across different times. Given that the price of the fixed basket of goods was $500 in 2018 with a price index of 150, and the price is $530 in 2022, we can calculate the price index for 2022 using the following steps:

Identify the base year cost (2018): $500 and the base year price index: 150.
Identify the current year cost (2022): $530.
Use the base year price index to calculate the 2022 price index: (Current Year Cost / Base Year Cost) × Base Year Price Index. Therefore, (530/500) × 150 = 1.06 × 150 = 159.

The price index in 2022 based on the fixed basket of goods is 159.