Consider a small economy in which consumers buy only two goods: pretzels and cookies. In order to compute the consumer price index for this economy for two or more consecutive years, we assume that
A)the percentage change in the price of pretzels is equal to the percentage change in the price of cookies from year to year.
B)the number of pretzels bought by the typical consumer is equal to the number of cookies bought by the typical consumer in each year.
C)neither the number of pretzels nor the number of cookies bought by the typical consumer changes from year to year.
D)neither the price of pretzels nor the price of cookies changes from year to year.

Question

Quizplus · Accepted Answer

The Consumer Price Index (CPI) measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. For accurate comparison and to compute the CPI accurately, it is assumed that the quantity of goods (in this case, pretzels and cookies) bought by the typical consumer does not change from year to year. This allows the CPI to measure changes in price levels without the results being distorted by changes in the quantities of goods consumers purchase.

Consider a Small Economy in Which Consumers Buy Only Two