Question

the price of a good increased by 5% frm 1968 to 1969,8% frm 1969 to 1970 and 77% frm 1970 to 1971.the avg increase frm 1968 to 1971 is quoted as 26% and not 30%...explain

Answer 1

From 1968 to 1971, the total increase is 1.05*1.08*1.77 = 2.00718

The question is: if the rate of increase were constant, what number would it have to be to make 2.00718

(1+p)^3 = 2.00718

The answer is p=.26143 or 26%

Here, you're looking for the geometric mean, not the arithmetic mean.

Answer 2

when is the g.m used?