What is the Consumer Price Index or the Cost of Living Index? What are the uses of Consumer Price Index?

Solution

The Index Number representing the average change over time in the prices paid by the ultimate consumer for a specified basket of goods and services is known as Consumer Price Index Number. It is an attempt to study the effect of rise and fall in the prices of different commodities on different classes of consumers.

It is also known as the cost of living index number or Retail price index number or price of living index number. It measures only changes in prices. According to Griffin, “The consumer price index number measures only change in prices. It tells nothing about the changess in the kinds and amount of goods and services, families buy and the total amount families spent for living”.

Uses of Consumer Price Index : Following are the uses of consumer price index :

1. Helpful in determining government policy : Consumer price index helps the government in determining the various policies such as wage policy, price policy, taxation policy, rent control policy, general economic policy etc.

2. Helpful in measuring the change in purchasing power : Consumer price index also helps in measuring the change in purchasing power of the money. It also helps in the determination of the real wages of the workers.

3. Helpful in analysing market : They are also used for the study and analysis for specific goods.

Some More Questions From Index Numbers Chapter

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Index Numbers

What is the Consumer Price Index or the Cost of Living Index? What are the uses of Consumer Price Index?

Some More Questions From Index Numbers Chapter

In most of the weighted index numbers the weight pertains to:

The impact of change in the price of a commodity with little weight in the index will be:

A consumer price index measures changes in:

The item having the highest weight in consumer price index for industrial workers is:

In general, inflation is calculated by using:

The item having the highest weight in consumer’s price index for industrial workers is:

consumer price index measures changes in:

The wholesale price index.

D.A. paid to the workers is based on:

Why do we need an index number?

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