The consumer price index (CPI) measures which of the following?

• A. The willingness to pay of consumers for a particular good
• B. The average change over time in the prices paid by urban consumers for a market basket of consumer goods and services
• C. The total consumer surplus in the economy
• D. The difference between producer surplus and consumer surplus

Answer: (B)

Verified step by step guidance

1. Understand that the Consumer Price Index (CPI) is an economic indicator used to measure inflation and changes in the cost of living over time.
2. Recognize that CPI tracks the average change in prices paid by urban consumers for a fixed 'market basket' of goods and services, which represents typical consumption patterns.
3. Note that CPI does not measure individual willingness to pay, consumer surplus, or the difference between producer and consumer surplus; instead, it focuses on price changes.
4. Recall the formal definition: CPI is calculated by comparing the total cost of the market basket in the current period to the cost of the same basket in a base period, then expressing this as an index number.
5. Conclude that the correct interpretation of CPI is 'the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.'