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Answer :
Final answer:
To find the 1993 price of a taco in 1970 dollars, divide the 1993 price by the ratio of the 1993 CPI to the 1970 CPI, resulting in approximately $0.27. This demonstrates the effect of inflation on consumer prices over time.
Explanation:
To calculate the 1993 price of a taco in 1970 dollars, we need to adjust the 1993 price using the Consumer Price Index (CPI) for both years to account for inflation. This is done by using the formula:
Real Value of Xt = Xt / Price Index at time t
In this case, the price of a taco in 1993 is $0.99 and the CPI in 1993 is 144.0. We want to find the equivalent cost in 1970 dollars, so we use the 1970 CPI which is 38.8. The calculation is as follows:
Real Value of taco in 1970 dollars = $0.99 / (144.0/38.8)
This simplifies to:
Real Value of taco in 1970 dollars = $0.99 / (3.71134) ≈ $0.267
Therefore, the price of a taco in 1993 is approximately $0.27 when expressed in 1970 dollars.
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