DB: Consumer Prices

The Consumer Price Index (CPI) measures the change in prices paid by urban consumers for goods and services. Urban consumers represent about 93 percent of the total U.S. population. Because the CPI uses a fixed basket of goods, there are problems that arise when new products are introduced, products are improved, or consumers switch to cheaper substitute goods when prices rise.

In the case of substitution bias, consumers tend to substitute cheaper goods for more expensive goods in response to higher prices. The CPI does not capture this behavior, but rather assumes that consumers continue to buy the same, higher priced goods, thus overstating the increase in the cost of living.

Discussion Topic:

When prices rise, there may be some ability to minimize the impact of higher prices, if you can substitute a less expensive alternative. Is this always possible?

The CPI is a weighted average of all prices. Not all prices rise, or rise at the same rate, and some prices may not change, or even decline. Thinking about the goods that you buy, are there trade-offs in consumption that you make, or have made, in order to live within your budget, or maintain your standard of living? Give example(s).

Scrolling down Tables 2.5.4 and 2.3.4 from the Bureau of Economic Analysis links provided in this week's lesson, what categories of consumption expenditures have the highest rates of inflation between 2012 and 2020/22? Are there any categories for which prices are relatively stable or even cheaper?

The link to the CPI table, details May year-over-year rates of inflation (2nd column) and month-over-month rates of inflation (3rd column). Any surprises or concerns to you?

The initial post should be at least 350 words in each answer

https://www.bls.gov/data/inflation_calculator.htm

https://www.bls.gov/data/inflation_calculator.htm

please copy the question and put the answer below

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