By Walter Nicholson
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Extra info for Microeconomic Theory: Basic Principles and Extensions, 10th Edition
Nevertheless, most observers regard the adoption of geomeans as moving the CPI closer to a COLI. The BLS has announced it will continue to use a Laspeyres approach—base period weights and arithmetic averaging—to combine the individual strata indexes into an overall CPI. In 2002 it will also publish an alternative index that uses a superlative index technique to combine the strata. However, a superlative index requires knowledge of consumer expenditure patterns in real time, and no country’s statistical system now produces such data.
The market at a high price, and they have a low volume of sales. Then for some time the price will tend to fall and the market will expand rapidly, until the new good becomes a mature, established product. For some new goods, however, producers follow a different strategy, introducing the new good at a low price in order to promote high initial sales and make the good more widely known to consumers. In this case, as the market expands, the price rises. , cell phones—is incorporated into the index only after a long delay, the period of falling prices will be missed and the overall price index will be biased upward.
Adjustment for differences between the old and the replacement items proceeds along one of two paths. Explicit quality adjustments are currently carried out using either a cost-based method or a hedonic regression technique. For instance, for three decades the BLS has estimated quality adjustments for the annual model changeover in motor vehicles using the cost-based method. The INTRODUCTION 29 BLS collects manufacturers’ estimates of the cost increases incurred in adding or changing observable features in the new model.
Microeconomic Theory: Basic Principles and Extensions, 10th Edition by Walter Nicholson