Ch 24

Chapter 24 is about measuring the cost of living.
The cost of living is measured by consumer price index.
That is a measure of the overall cost of goods and services bought by a consumer.
-This uses the ratios of cost of the many goods and services
There are five steps to find CPI.
-Fix the basket
-Find the prices
-Compute the basket's cost
-Choose a base year and compute the index
-Compute the inflation rate
To calculate inflation you find the percent change in the CPI from year a to year b.
CPI is difficult to measure because of
-substitution bias
-increased variety in products for the customer
-changes in the quality of goods and services