Midterm Extra Credit

1. This assignment is worth 6 points of your 74 point midterm. Assuming you receive all 6 points, how much will your midterm percentage change? 6/74 = .08

Midterm Extra Credit

2. Let’s say you and your pal take the midterm and your percentage score is 20% greater than her percentage score. Let’s say you received a 90%, what was her percentage score?90-x /x = .2 → 90=1.2x → x = 75%OR…90 = (1+.2)x → x = 75%

All degrees Associates Bachelor's Master's Professional Doctoral

Male 1211 270 631 238 44 29

Female 1725 443 855 356 44 27

Total 2936 713 1485 594 88 56

a. Make a single graph to answer this question: In 2006 what percentage of all degree-earning males and what percentage of all degree-earning females earned a Doctoral degree?

male female0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

Percentage of Degree Earners Earning a Doctorate by Gender

Gender

perc

ent

CPIConsumer Price Index

Consumer Price Index

• Prices typically go up – inflation• Guess the price of a Hershey’s Bar in 1962…• Right…$0.05• Now?• Right … $1.00

Percentage increase in price of items from 1962 to 1998

ItemPercentage Increase in

Price

Hershey bar 1180%New York Times 1100%First class postage 700%Gasoline (gallon) 284%

Hamburger (McDonald's double) 861%

Chevrolet (full size) 790%Refrigerator freezer 60%

Consumer Price Index

• Prices change but how do we keep track of the changes?

• CPI is a measure of the general change in prices over a given amount of time.

• Look at CPI

Components of the CPI

Housing 41.4%

Transportation 17.8%

Food 16.2%

Energy 8.2%

Medical Care 6.4%

Apparel and Upkeep 6.1%

Other 3.9%

Look at CPI

• Calculate inflation from 2005 to 2006

• You calculate inflation from 1929 to 1930

Old

Old - New

Old

Old - New

Look at CPI

• Ratio of two indices 2006 to 2005

• The consumer goods of 2006 cost 1.03 times that of 2005 on average.

03.13.195

6.201

2005

2006

CPI

CPI

CPI

• The value of the dollar changes how do we compare prices (actual dollars)?

• We can use the CPI to adjust prices (constant dollars) so that we can accurately compare them.

• Actual Dollars = an absolute dollar (price) value • Constant dollars = value of a dollar (price) relative

to the value of a dollar in a specific year.

Converting to Constant Dollars

The general formula is

priceoldOldCPI

NewCPI *

Converting to Constant Dollars

• The average baseball player's salary in 1970 was $29,303 and in 2005 the average baseball player made $2,632,655. In terms of actual dollars the salaries of baseball players have certainly gone up. But in terms of constant dollars do baseball players today make more or less than they did in 1970?

1. Find the CPI values for your two years (2005 and 1970)

2. We want to compare the 1970 salary to the 2005 salary so 29,303 is the “old price” or old salary.

Converting to Constant Dollars

priceoldOldCPI

NewCPI *

SalaryDollar Constant 20051970*1970

2005Salary

CPI

CPI

497,147$303,29*8.38

3.195

$2,632,655497,147$

Earlier we found that the inflation rate from 2005 to 2006 was 3%. If your boss in 2005 said that over the next year you were going to get a 2% raise would that make you smile? Why or why not?

“Expensive”

• You can check to see if some good increased in price at the same rate as the CPI or at a slower or faster rate.

• For example, the price of gasoline in 1981 was $1.38 per gallon on average. In 2005, it averaged $2.30. Was gasoline more expensive or less expensive in 2005?

“Expensive”

• Need to take inflation into consideration. • Let’s convert the 1981 price to 2005 constant

dollars.

PriceDollar Constant 2005 Price1981*1981

2005

CPI

CPI

96.2$38.1$*9.90

3.195 30.2$96.2$

“Expensive”

• Since $2.96 is more than the $2.30 that people were actually paying in 2005, gasoline was more expensive in 1981 than it was in 2005 after we account for inflation using constant dollars.

• Put another way, the $1.38 you were spending in 1981 was affecting you more than the $2.30 you are spending in 2005.

Constant Dollar

Let’s say in you’re Aunt tells you that in 1990 she was making $50,000. Let’s see what that translates tofor 2006 dollars…$130.70 in 1990 is equivalentto $201.60 in 2006.

YearCPI

1982-84=1001990 130.71991 136.21992 140.31993 144.51994 148.21995 152.41996 156.91997 160.51998 163.01999 166.62000 172.22001 177.12002 179.92003 184.02004 188.92005 195.32006 201.6

Constant Dollar YearCPI

1982-84=1001990 130.71991 136.21992 140.31993 144.51994 148.21995 152.41996 156.91997 160.51998 163.01999 166.62000 172.22001 177.12002 179.92003 184.02004 188.92005 195.32006 201.6

Dollars 77,123 Salary 2006

Salary2006000,50*7.130

6.201

“Expensive”

• Compare the price of gas in 1990 which was $1.16 to the price of gas in 2000 which was $1.51. Again, nominally, the price in 2000 is larger than the price in 1990, but that is to be expected. When did it "feel" more expensive to buy gas? Convert the 1990 price to its 2000 constant dollar equivalent by multiplying the 1990 price by the ratio of the CPI values in 2000 and 1990:

“Expensive”

• $1.53 > $1.51 so gas wasmore expensive in 1990

YearCPI

1982-84=1001990 130.71991 136.21992 140.31993 144.51994 148.21995 152.41996 156.91997 160.51998 163.01999 166.62000 172.22001 177.12002 179.92003 184.02004 188.92005 195.32006 201.6

priceCPI

CPI1990*

1990

2000

53.116.1*7.130

2.172