Chp. 24

Chapter 24 is about measuring the cost of living. Methods used to calculate the cost of living is the CPI(Consumer Price Index) which is the measure of the overall cost of the goods and services purchased by a typical buyer. The steps such as "Fix the basket", "Find the prices", "Compute the basket's cost", "Compute index", and "Compute Inflation". The calculation can also calculate the PPI(Producer Price Index) which measures the cost of a basket of goods and services bought by firms. However, solving the issues in measuring the cost of living are difficult. These problems are known as substitution bias(when prices change from one year to the next, they do not change proportionately), introduction to new goods(when a new good is introduced, consumers have more variety from which to choose, and in turn reduces the cost of maintaining the same level of economic well-being), and unmeasured quality change(when the quality of a good deteriorates from one year to the next while its price remains the same).