Consumer Price Index - Index Numbers, Business Mathematics and Statistics

# Consumer Price Index - Index Numbers, Business Mathematics and Statistics - Business Mathematics and Statistics - B Com

CONSUMER PRICE INDEX

The consumer price index measures the amount of money which consumer of a particular class have to pay to get a basket of goods & services at a particular point of time in comparison to what they paid for the same in the base period.

Different classes of people consume different types of commodities & even that same type of commodities are not consumed in the same proportion by different classes of people (for e.g. higher class, middle class, lower class). The general indices do not highlight the effects of change in prices of a various commodities consumed by different classes of people on their cost of living.

The consumer price index is also known as cost of living index or retail price index.
Methods of Constructing Consumer Price Index The consumer price index can be constructed by any of the following two methods :

(1) Aggregate Expenditure Method or Aggregative Method

(2) Family Budget Method or the Method of Weighted Relatives

The document Consumer Price Index - Index Numbers, Business Mathematics and Statistics | Business Mathematics and Statistics - B Com is a part of the B Com Course Business Mathematics and Statistics.
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## FAQs on Consumer Price Index - Index Numbers, Business Mathematics and Statistics - Business Mathematics and Statistics - B Com

 1. What is the Consumer Price Index (CPI)?
Ans. The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. It is often used to track inflation and determine adjustments in wages, pensions, and government benefits.
 2. How is the CPI calculated?
Ans. The CPI is calculated by comparing the prices of a fixed basket of goods and services in a given period to the prices of the same basket in a base period. The prices are weighted based on the expenditure patterns of urban consumers, and the index number is derived from this weighted average.
 3. What is the purpose of using index numbers in the CPI?
Ans. Index numbers are used in the CPI to measure the relative change in prices over time. By assigning a base period index number of 100, any subsequent index number above 100 indicates an increase in prices, while a number below 100 indicates a decrease. This allows for easy comparison and analysis of price changes.
 4. How is the CPI used to calculate inflation rates?
Ans. The CPI is used to calculate inflation rates by comparing the percentage change in the CPI from one period to another. The inflation rate is essentially the percentage increase in prices over time. It provides valuable information for monetary policy, economic forecasting, and making adjustments to income and benefits to maintain their purchasing power.
 5. What are the limitations of the CPI as a measure of inflation?
Ans. The CPI has some limitations as a measure of inflation. It may not accurately reflect the price changes experienced by all consumers, as it is based on the spending patterns of urban consumers only. Additionally, it does not capture changes in quality, variety, or brand preferences of goods and services. Finally, the CPI may not capture the impact of new products or technological advancements that can affect consumers' purchasing decisions.

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