Question

One of the widely acknowledged problems with using the consumer price index as a measure of the cost of living is that the CPI a. accounts only for consumer spending on food, clothing, and energy. b. fails to account for consumer spending on housing. c. fails to account for the introduction of new goods. d. fails to account for the fact that consumers spend larger percentages of their incomes on some goods and smaller percentages of their incomes on other goods.

Answer 1

A widely acknowledged problem with using the consumer price index as a measure of the cost of living is that it fails to account for the introduction of new goods.

More about consumer price index and its problem-

• A more accurate indicator of a nation's standard of living than per capita GDP is the consumer price index or CPI.
• It is based on the total cost of a fixed basket of goods and services purchased by an average customer in comparison to the cost of the same basket in a base year.
• The CPI can get a precise assessment of the cost of living by including a wide range of thousands of items and services with the set basket.
• It's crucial to keep in mind that the CPI is an index number or a percentage change from the base year rather than a monetary value like the GDP.
• Because CPI is based on a fixed basket of products, the CPI does not provide an entirely accurate measure of the cost of living, despite being a convenient approach to calculate the cost of living and the relative price level over time.
• The bias against substitution, the introduction of new products, and quality variations are three issues with the CPI that should be mentioned.

To learn more about the consumer price index, refer to-

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