Why does a price index based on constant weights tend to overstate inflation in periods after the base year when the price of one good is rising quickly compared to other goods?

Because people tend to buy cheaper substitutes instead of the good whose price is quickly increasing.  But the constant-weight index includes the similar quantities of the expensive goods.

 

Posted Date: 8/1/2013 3:56:09 AM | Location : United States

Ask an Expert

Related Discussions:- How to calculate the a price index, Assignment Help, Ask Question on How to calculate the a price index, Get Answer, Expert's Help, How to calculate the a price index Discussions

Write discussion on How to calculate the a price index
Your posts are moderated

Write your message here..

Related Questions

International development association, INTERNATIONAL DEVELOPMENT ASSOCIATIO... INTERNATIONAL DEVELOPMENT ASSOCIATION: International Development Association (IDA) is an affiliate of the IBRD. It was established in 1960 to provide "soft loans" to economica

General, A tax imposed on a market with an inelastic demand and an elastic ... A tax imposed on a market with an inelastic demand and an elastic supply will cause

Fixed input and variable input, Fixed input and variable input: A fixe... Fixed input and variable input: A fixed input is that input whose quantity cannot be varied in the short-run when demand conditions require an increase or a decrease in produc

Major air pollutants, Major air pollutants can be sub divided into 2 catexa... Major air pollutants can be sub divided into 2 catexampleories: Inorganic gases and particular gases. (A) Inorganic gases 1. Carbon monoxide (CO) CO is a colourless, lethal gas

Discuss about modern economic growth, Discuss about Modern economic growth ... Discuss about Modern economic growth Modern economic growth is also a shift in the kinds of things we do at work and play and in the way we live. Back in immediate aftermath of

Black economy public policy interface, Black Economy Public Policy Interfac... Black Economy Public Policy Interface: The above mode of functioning and expansion of the black economy became an important basis for policy disruption in India. The undergrou

What do you meant by informal economy, Q. What do you meant by Informal Eco... Q. What do you meant by Informal Economy? Informal Economy:Informal sector of the economy represents the production of services and goods for the own-use of the producers or fo

.theory of supply, explain the concept of producers'' equilibrium explain the concept of producers'' equilibrium

What is demographic transition, What is demographic transition In the w... What is demographic transition In the world today not all nations have gone through their demographic transitions. Many countries today aren't rich enough to have begun populat

Labour supply, Discuss how the opportunity cost principle influence a suppl... Discuss how the opportunity cost principle influence a supplier''s decision to supply labour