Question

What does consumer price index reflect? Explain with clear examples.

Answer 1

Dear student,

Consumer Price Index reflects the change in the cost of living in two different situations. It shows the changes in the price level of specified basket of goods and services consumed by the households.

Consumer price index = Σ p₁q₀ / Σp₀q₀ * 100
where, p₁q_{0 is total expenditure at current year prices and} Σp₀q_{0 is total expenditure at the base year prices/}
Regards