Chapter 24

Chapter 24 talks about the cost of living. The cost of living sounds exactly like what it is. It is the amount of money needed to pay for things for a normal life. However this is hard to measure since prices are constantly changing and the value of currency is changing due to inflation. To track the change of prices and inflation the consumer price index is used. The consumer price index compares the prices of things called baskets from year to year. Baskets are fixed prices that represent what goods and services the consumer values as most important. Comparing the baskets allows for a consumer price index to be found each year. Then the years can be compared to find the inflation rate for each year. However the CPI is not perfect for measuring the cost of living. It does not take into account that a higher price will not mean the consumer will pay more, they will just find a cheaper substitute. Also it does not reflect the introduction of new goods and services into the market. I give this chapter a 2/3. I understand the first part of the chapter and how the CPI works, but i start to get more confused further in the chapter like how the CPI does not reflect the introduction of new goods and services.