A price index measures the change in the cost of a market basket relative to a base time period. This index is used to track inflation and changes in the cost of living. Price indices are applicable to both consumer and producer goods and services, not just consumer goods and services. They do not show daily changes but rather provide a measurement of the average change over a given period.

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A Price Index

Question 10

Multiple Choice

A price index:

A) measures how much the cost of a market basket has risen or fallen relative to the cost of the same market basket in a base time period.
B) summarizes the changes in the cost of living for only rural consumers.
C) allows us to see clearly the daily changes in the cost of a market basket.
D) is generally only used for consumer goods and services.

Correct Answer: