Consider a small economy in which consumers buy only two goods: pies and tarts.In order to compute the consumer price index for this economy for two or more consecutive years,we assume that

Question

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To compute the consumer price index for consecutive years, we need a fixed basket of goods. Choice A is incorrect because it assumes the percentage change in price of pies and tarts is the same, which may not be the case. Choice B is incorrect because it assumes the quantity of pies and tarts purchased is the same, which is not necessary for calculating the price index. Choice D is incorrect because it assumes prices are constant, which is not the case in real life. Therefore, choice C is the best option as it assumes the quantity of pies and tarts purchased remains constant over time, allowing for a comparison of the change in prices between the two years.

Consider a Small Economy in Which Consumers Buy Only Two