Suppose people only spend on three things: food, cars and houses.
They spend
\[\frac{1}{6}\]
of their income on good.They spend
\[\frac{1}{3}\]
of their income on cars.They spend
\[\frac{1}{2}\]
of their income on houses.Food prices increase by 10%.
Food prices increase by 20%.
Food prices increase by 30%.
The overall increase in the price level is
\[10 \times \frac{1}{6}+20 \times \frac{1}{3}+30 \times \frac{1}{2}=23.3 \%\]
.