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Problems with the Consumer Price Index (CPI) definitions

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Terms in this set (15)

  • Consumer Price Index
    A measure tracking the average price change over time for a fixed basket of goods and services purchased by households.
  • Inflation
    A general increase in prices across an economy, reducing the purchasing power of money over time.
  • Substitution Bias
    A distortion arising when consumers switch to cheaper alternatives as prices change, but calculations assume constant consumption.
  • Quality Bias
    A distortion occurring when improvements in product quality raise prices, but calculations attribute all increases to inflation.
  • New Product Bias
    A distortion resulting from delayed inclusion of new goods, missing initial high prices and later price drops in calculations.
  • Outlet Bias
    A distortion caused by shifts in shopping habits to discount or online stores, leading to lower actual prices than those measured.
  • Basket of Goods
    A fixed set of products and services used to track price changes over time for cost-of-living calculations.
  • Price Level
    An aggregate measure reflecting the average prices of goods and services in an economy at a given time.
  • Discount Store
    A retail outlet offering goods at lower prices, often in bulk, influencing actual consumer spending patterns.
  • Brick-and-Mortar Store
    A traditional physical retail location, often used as a reference point for price data in calculations.
  • Technological Advancement
    Improvements in product features or production methods, often leading to higher quality and changing price trends.
  • Cost-of-Living
    The amount of money needed to maintain a certain standard of living, influenced by changes in average prices.
  • Law of Demand
    An economic principle stating that as the price of a good rises, the quantity demanded generally falls.
  • App Integration
    The inclusion of software applications in devices, enhancing functionality and often affecting product value and price.
  • Production Improvement
    Enhancements in manufacturing processes that can lower costs and prices or increase product quality over time.