The cost of living Index (C.L.I.) is always :a)Weighted indexb)Price I...
Cost of Living Index (C.L.I.) - Weighted Index
Cost of living index (C.L.I.) is a statistical measure that compares the cost of living between different geographical areas or time periods. It is a weighted index that takes into account the relative importance of different goods and services in a typical household's budget.
Calculation of C.L.I.
The cost of living index is calculated as follows:
C.L.I. = (Cost of basket in the current period / Cost of basket in the base period) x 100
Here, the "basket" refers to a collection of goods and services that are typical of a household's consumption patterns. The base period is usually chosen as a reference period against which to compare the current period.
Weighted Index
The cost of living index is a weighted index because it takes into account the relative importance of different goods and services in a typical household's budget. The weights are usually derived from household expenditure surveys, which provide information on the proportion of income that is spent on different items.
For example, if housing costs represent 30% of a typical household's budget, then housing would be given a weight of 30% in the cost of living index. Similarly, if food and beverages represent 20% of the budget, then this category would be given a weight of 20%.
Importance of C.L.I.
The cost of living index is an important tool for policymakers, businesses, and individuals. It can be used to:
- Determine the relative cost of living between different geographical areas or time periods
- Adjust wages, salaries, and benefits to reflect changes in the cost of living
- Set prices for goods and services
- Determine the level of government benefits, such as social security and welfare payments
- Make investment decisions
Conclusion
In conclusion, the cost of living index is a weighted index that takes into account the relative importance of different goods and services in a typical household's budget. It is an important tool for policymakers, businesses, and individuals to determine the relative cost of living between different geographical areas or time periods.
The cost of living Index (C.L.I.) is always :a)Weighted indexb)Price I...
C.L.I is nothing but laspeyres formula.
hence it is weighed