Question

A problem with the cpi is that it measures the price of only food and clothing while ignoring what happens to the prices to such important items as mediacal care and energy?

Answer 1

Answer:

No, the Consumer Price Index does not ignore the price changes of medical care and energy.

Explanation:

The consumer price index is a measure that shows the changes in price of the weighted average market basket of goods and services purchased by households for consumption. By definition, this implies that the CPI considers a certain category of goods in its computation. For example, the Bureau for Labor and statistics considers this basket of goods to fall under the following categories:

-Education

-Housing

-Clothing

-Medical

-Food and Beverages

-Transportation

-Recreation

-Other

Based on this, we can ascertain that the CPI considers most of the goods and services purchased by a household on a constant basis such as medical care and energy.

The limitations or problems faced by the CPI include exclusion of the availability of substitutes, intriduction of new goods as time goes on, qualtiy changes and difference in consumption patterns in individuals.