What is the CPI and how is it calculated? What will be an ...

[imowrer]

What is the CPI and how is it calculated?
 
  What will be an ideal response?

Question 2

The mercantilist economic doctrine was widely followed from the sixteenth to the eighteenth century in Europe.
 
  Mercantilists advocated the use of tariffs to restrict trade as they believed that countries that export more than they import will increase wealth. What could be the problem with such an economic policy?

[jesse.fleming]

Answer to Question 1

The CPI is the Consumer Price Index. The CPI equals (Cost of CPI basket at current prices  Cost of CPI basket at base-period prices) 100.

Answer to Question 2

While the Mercantilists believed that higher exports would increase wealth, they overlooked some of the adverse effects of tariffs. With tariffs, consumers pay a price that is higher than the world price of a commodity. Tariffs raise prices for consumers and reduce total surplus in a country. Although government earns revenues from tariffs, it also leads to deadweight losses in the market.