Online Lesson

Let's Talk Turkey: The Cost of Thanksgiving Dinner

Introduction:

 How does your family celebrate Thanksgiving? Are you joined by friends and/or family for a special feast? What do you eat? Most American families celebrate Thanksgiving by cooking turkey. According to www.butterball.com, 90 percent of U.S. households eat turkey on Thanksgiving and 50 percent eat turkey on Christmas day.

Have you ever wondered what it costs to prepare a traditional Thanksgiving meal of turkey, stuffing, sweet potatoes, pumpkin pie, cranberries, and other goodies? The American Farm Bureau Federation (AFBF) has conducted a Thanksgiving dinner price survey for each year since 1986. Surveyed shoppers are asked to report local costs of twelve basic items found on the dinner table on Thanksgiving day. Survey responses are used to determine the average cost of a Thanksgiving dinner prepared for 10 people.

See "Slightly Higher Thanksgiving Dinner Cost This Year " at www.fb.org/index.php?fuseaction=newsroom.newsfocus&year=2006&file=nr1114.html .

1. According to AFBF, what was the average cost of Thanksgiving dinner for 10 people in 1998?
2. How does this compare to the 1997 cost?

Process:

A THANKSGIVING MARKET BASKET

The twelve components of the survey can be thought of as a Thanksgiving market basket of items. This is similar to the procedure that is used in tabulating the monthly Consumer Price Index (CPI). The CPI measures the monthly change in the cost of a fixed market basket of items that is purchased by the typical urban household. The monthly cost of this market basket is compared to the cost of the same basket during a predetermined base year (this is the year in which the price index is usually set equal to 100 that is used to compare changes in economic variables). By comparing the current CPI to its base-year value, we can see how much the average price level has changed over time. We can also use two consecutive annual CPI measurements to determine the rate of inflation (an increase in the average price level) or deflation (a decrease in the average price level).

See "Consumer Price Index, 1913-" at www.minneapolisfed.org/community_education/teacher/calc/hist1913.cfm .

The years from 1982-84 are considered the base period in the construction of the CPI. That is, 1982-84 = 100 in calculating the CPI.

1. By what percentage have consumer prices increased since the base period?
2. What was the annual rate of inflation for 1998?
3. How is this calculated?

Return to "Slightly Higher Thanksgiving Dinner Cost This Year " at www.fb.org/index.php?fuseaction=newsroom.newsfocus&year=2006&file=nr1114.html .

Note the market basket of items in the Thanksgiving Day dinner survey. In the following table, you will find the 12 items in the Thanksgiving market basket and their 1998 prices. Ignore the 1999 column for now. Note that, unlike the CPI, the AFBF survey is not intended to be scientific. In addition, while items in the CPI market basket are weighted by their relative importance in household purchases, no such weighting scheme is employed here (although the largest cost item, turkey, does account for over 40 percent of the total cost of the Thanksgiving market basket).

The AFBF has tracked the average cost of the same basket of Thanksgiving dinner items since 1986. This allows us to make meaningful comparisons of the total costs reported in past surveys.

1. What was the cost of the Thanksgiving meal in 1986?
2. How does this compare to the 2006 cost?
3. How does the 1998 Thanksgiving dinner cost compare to its value one year earlier?

A THANKSGIVING PRICE INDEX

A price index for a given year is calculated by comparing the cost of the market basket of items in the current year to its cost in the base year. Specifically, a current year price index can be calculated as:

(Current cost of market basket/Base year cost of market basket) x 100

Thus, the price index in the base year equals 100 since the current cost of the market basket must equal the base year cost since they are the same.

This allows us to compile a Thanksgiving price index using past information reported by AFBF. For example, if we use 1986 as the base year, then the Thanksgiving price index equals 100 in 1986 (calculated as {$28.74/$28.74}x100). In 1987, the price index declines to 85.3 (calculated as {$24.51/$28.74}x100).

ACTIVITY

Using the information reported in "Slightly Higher Thanksgiving Dinner Cost This Year ," compile a Thanksgiving price index.

The Thanksgiving price index helps you see that the average cost of Thanksgiving dinner for 10 people has increased by 15.1 percent since 1986. You can also see that there have been many years in which the overall price index has declined (note that this represents "deflation" in the Thanksgiving dinner market). Comparing the Thanksgiving price index to the CPI over the period 1986-1998 leads us to some interesting observations.

Compare "Consumer Price Index, 1913-" at www.minneapolisfed.org/community_education/teacher/calc/hist1913.cfm to your Thanksgiving price index.

1. Have overall consumer prices increased by more or less than Thanksgiving dinner prices?

2. In general, which of the two price indexes has been more variable over the 1986-1998 period?

3. How might you explain that the Thanksgiving price index has been characterized by more variability than the CPI over the 1986-1998 period?

CALCULATING THE COST OF THE THANKSGIVING
MARKET BASKET IN YOUR HOME TOWN

Print out a copy of the table of the Thanksgiving market basket of items in 1998 and 1999 that is found earlier in this EconomicsMinute. Your teacher will split you into groups of four or five people. Your group's project is to go to a local supermarket and collect information on the current market prices of the items in the Thanksgiving market basket. In collecting prices for the items, select the best in-store price that you can find. Avoid using coupon specials to keep this as simple as possible. Note that the price of miscellaneous items has been calculated for you (it is assumed to have remained unchanged) in order to avoid confusion in replicating the AFBF survey.

When you have collected all of the necessary information to complete the table, calculate the total cost of the market basket. Use this information to calculate the 1999 Thanksgiving price index (assume that 1986 is the base year and the cost of the market basket was $28.74 in that year). You can now determine what the percentage change in the cost of the Thanksgiving dinner for 10 is this year by comparing it to the 1998 Thanksgiving price index! As Thanksgiving day approaches, check the news releases by the American Farm Bureau Federation at www.fb.org/index.php?fuseaction=newsroom.newsarchives&year=2007 to see how the cost of your local Thanksgiving market basket compares to that reported in the AFBF's annual survey.