Multiple Choice
How does the availability of complementary goods act as a value driver for consumer surplus?
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5. Consumer and Producer Surplus; Price Ceilings and Floors
Consumer Surplus and Willingness to Pay
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When a restaurant purchases vegetables, to which major group of the Consumer Price Index (CPI) does this purchase belong?
A
Food at home
B
Housing
C
Food away from home
D
Not included in the CPI
Verified step by step guidance1
Understand what the Consumer Price Index (CPI) measures: it tracks the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.
Identify the categories within the CPI related to food: 'Food at home' includes groceries purchased for home consumption, while 'Food away from home' includes meals and snacks purchased at restaurants or other eating places.
Recognize that when a restaurant purchases vegetables, it is buying inputs for producing meals, not consuming goods directly as a consumer would.
Since the CPI measures prices from the consumer's perspective, purchases made by businesses (like restaurants buying vegetables) are not included in the CPI calculation.
Therefore, the purchase of vegetables by a restaurant does not fall under any CPI category such as 'Food at home' or 'Food away from home' and is correctly classified as 'Not included in the CPI.'
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