Question
Explain four problems associated with determining consumer price indices in an economy.
Answer
i. Determining a basket of goods - not easily to determine what goods are commonly used by households
ii. Determining a family unit/household - different families hire in different places hence picking a typical unit is a problem
iii. Price differences on goods - similar goods/services may be priced differently in different places.
iv. Determining the base year - not easy to come up with a year in which prices were fairly stable.
v. Determination of average method to use - simple or weighted average.
ii. Determining a family unit/household - different families hire in different places hence picking a typical unit is a problem
iii. Price differences on goods - similar goods/services may be priced differently in different places.
iv. Determining the base year - not easy to come up with a year in which prices were fairly stable.
v. Determination of average method to use - simple or weighted average.
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