ECON 2301 Lecture Notes - Lecture 1: Producer Price Index, Price Level

16 views2 pages

copperspider146

23 Jun 2020

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

Producer price index, def: producer price index (ppi) a measure of the cost of a basket of goods and services bought by firms, firms eventually pass on higher costs to consumers through higher prices of products. Correcting economic variables for the effects of inflation: to change dollar values from one year to the next, we can use this formula: Value in year 2 dollars = value in year 1 dollars x (price level year 2 / price level year 1: example: babe ruth"s 1931 salary in 2012 dollars. Salary in 2012 dollars = salary in 1931 dollars x (price level 2012 / price level. If cpi in 1931 is 15. 2 and cpi in 2012 is 229. 5 and babe ruth"s 1931 salary was. The government also indexes tax brackets for federal income tax: there are uses on indexation in the private sector as well.

Related Questions

The substitution bias in the consumer price index refers to the:

a. substitution by consumers toward new goods and away from old goods.

b. substitution by consumers toward a smaller number of high-quality goods and away from a larger number of low-quality goods.

c. substitution by consumers toward goods that have become relatively less expensive and away from goods that have become relatively more expensive.

d. substitution of new prices for old prices in the CPI basket of goods and services from one year to the next.

There are many different types of market baskets that economists measure. For example, the market basket for consumers called the 'Consumer Price Index' tracks the prices associated with the typical consumer's purchases of goods and services. The 'Producer Price Index' tracks the prices that firms receive when selling their goods and services.

Indicate the appropriate market basket to use in each of the following instances.

Consumer Price Index:

a)	Measuring differences in the cost of living between different cities.
b)	Examining price changes that might affect businesses.
c)	Measuring the cost of living for a typical consumer.

Producer Price Index:

A)	Measuring differences in the cost of living between different cities.
B)	Examining price changes that might affect businesses.
C)	Measuring the cost of living for a typical consumer.