What is the CPI Which do you think has a greater effect on t

What is the CPI? Which do you think has a greater effect on the consumer price index: a 10 percent increase in the price of chicken, or a 10 percent increase in the price of caviar? Why?

Solution

The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by consumers for a market basket of consumer goods and services.

Chicken is a normal good and used by more people than caviar. Caviar is a luxury product. So, a 10 percent increase in the price of chicken will affect more people than a 10 percent increase in the price of caviar. So, CPI which is a representative of consumer\'s cost of living will increase more due to a rise in price of chicken than a rise in the price of caviar.