High School

In 1980, when the Consumer Price Index (CPI) was 82.4, Ivan purchased a house for $71,900. Assuming that the price of houses increased at the same rate as the CPI from 1970 to 1980, approximately how much would the house have cost in 1970, when the CPI was 38.8?

A. $38,800
B. $38,000
C. $33,900
D. $82,400

Answer :

Final answer:

By using the Consumer Price Index (CPI) and setting up a proportion, you can estimate that if the house's price increased at the same rate as the CPI, the house in 1970 would cost approximately $33,645.63.

Explanation:

You can estimate the cost of the house in 1970 by using the Consumer Price Index (CPI). In this scenario, the CPI represents the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. The prices rise due to inflation, and CPI helps to measure this.Let's use the idea of proportions to solve the problem:

1980 cost/1970 CPI = 1970 cost/1980 CPI
$71,900/82.4 = X/38.8Mathematically, you could cross-multiply and solve for X (which represents the price of a house in 1970) in this equation. So, X = $71,900 x 38.8 / 82.4. After doing the calculations, you'd find that X = $33,645.63. Therefore, if the house price increased at the same rate as the CPI, then the house would have cost approximately $33,645.63 in 1970. This is closest to option C.

Learn more about Consumer Price Index (CPI) here:

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