Question

When computing the cost of the basket of goods and services purchased by a typical consumer, which of the following changes from year to year?

Answer 1

Answer:

the prices of the goods and services

Explanation:

Under normal circumstances, the relative prices of goods and services in an economy are constantly changing, since they are set depending on the quantity demanded and offered in the market where they are traded, and if they are seasonal.

Suppose an umbrella costs one hundred pesos and a two hundred shirt. This means that the shirt is worth twice the umbrella. In the rainy season, people will buy more umbrellas, so it will increase its price, becoming more expensive in relation to the beach shirt. The only thing that changed was the relative price between both products, given the increase in the demand for umbrellas. Therefore, the price of one good only makes sense in relation to the price of another and not by itself.

Another reason is when the prices of almost all goods and services rise and continue to increase due to an increase in the amount of money in circulation. This is because people have more money to spend and will demand more products, and if the amount of goods and services in the market is the same, prices will continue to rise, since the amount offered has not increased for supply the increase in demand.