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Jan 21, Measuring the Cost of Living

Jan 21, Measuring the Cost of Living - time...

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Measuring the Cost of Living 21/01/2008 18:10:00 Chapter 5 examined issues related to measuring a country’s income This chapter examines issues related to measuring a country’s consumption over  time Consumer Price index (CPI) The CPI is a measure of the overall cost of the goods and services bought by  a typical consumer Stats Canada reports the CPI every month.  It is used to monitor changes in the cost of living over time. When the CPI rises, the typical family has to spend more dollars to maintain  the same standard of living How the CPI is calculated – 4 Steps 1. Determine the Basket :  Determine what prices are most important to the typical  consumer. If the typical consumer buys more of one good, then the price of that good is  more important and is given more weight in measuring the cost of living, Stats Canada sets these weights by surveying consumers to find out the  basket of goods the typical consumer buys. (shelter, transportation and food  are the largest sectors) 2. Find the Prices :  Find the prices of each of the goods and services in the basket for  each point in time. 3. Compute the Basket’s Cost :  Use the data on prices to calculate the cost of the  basket of goods and services at different times. 4. Choose a Base Year and Compute the Index: Designate one year as the basis year Compute the index by dividing the price of the basket in one year by the  prices in the base year and multiplying by 100. Example:
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Suppose the residents of Fastfoodland spend all of their income of 2 goods: hot  dogs and hamburgers. Suppose also that typically, the residents consume 4 hot dogs and 2 hamburgers
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Jan 21, Measuring the Cost of Living - time...

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