Question

Is the CPI an adequate measure of the cost of living? Discuss three biases in CPI measurement.

Answer 1

CPI or consumer price index is explained as the measure of weighted mean prices of taken goods and and. It includes food,, transportation and other meed ical services. Change in Price Price for commodity of taken goods and used to aver agee thee values. Cost of living and the price changes can be find using the consumer price index. CPI is considered as a indicator of economy. CPI can be used as economic indicators, to adjust cost off living, to adjust eligibility sleeveless and more.It gives a clear picture off economy and act as guide to common.

CPI frequently has little difference from the admeasure off admeasure of living , although it is considered as cost of living index. The change in the total money that one should spend in order to satisfy standard off living is referred to the cost off living index. CPI is most appreciable method for adjustment in payments with customers and make them to pay the recent price. It is same as they purchased earlier.

But although CPI is not said to be considered as perfect measure of cost of living.. Because, measure improvements in improvements is not products in any measured index. CPI also doesn't have any standardize measure to exhibit quality improvements off products. For customers CPI only exhibits changes in price . No more exhibits benefits is shown by thee index.

Three biases in consumer price index measurement

* substitution bias: Consumer demand for alternative product increases as product off commodity in consumer basket got increased. The affects that created in increased consumer benefits,  Ibumetin identifiable;e in CPI index.

* quality index : bias doesn't reflects the developments developments student made in last months. Price changes are only understandable through computer, therefore we cant judge thee Total Quality off the food.

*Nee product bias : In CPI index latest latest products are products not though Technological invention is also not there. It only shown price changes. Even though the Price is Price influenced by thee greatly inventions