Participate in a discussion with your classmates regarding a student’s CPI. Revi
ID: 1144092 • Letter: P
Question
Participate in a discussion with your classmates regarding a student’s CPI. Review the “EYE on Your Life” caption titled, A Student’s CPI, on page 185 in the textbook(Insert from EYE of Your Life below).
The CPI measures the percentage change in the average prices paid for the basket of goods and services bought by a typical urban household. A student is not a typical hosehold. How have the prices of a student's basket of good and services changed? The answer is by a lot more than those of an average household. Suppose that a student spends 25 percent of her income on rent, 25 percent on tuition, 25 percent on books and study supplies, 10 percent on books and study supplies, 10 percent on food, 10 percent on transportation, and 5 percent on clothing. We can use these weights and the data collected by the BLS on individual price categories to find the student's CPI and the inflation rate that is implies. The graph shows this students inflation rate capared to that of the official CPI. Between 2003 and 2013, a students CPI rose 32 percent above the offical CPI. Rent, textbooks, and tuition are the main items whose prices rose faster than average.
Now that we have learned that the CPI shopping cart is filled with the items that an average urban household buys, discuss and share with your classmates why rent, textbooks, and tuition are the main items whose prices rose faster than average. Please apply the CPI concepts, limitations, and biases as explained in the textbook when sharing your discussion.
EYE on YOUR LIFE A Student's CP have the prices of uke of goods and services 25 mplesExplanation / Answer
During the given time interval, the large number of students from different parts of the world, have joined the American Universities. It happened due to the higher demand of admission into the American Universities. It caused the increase in tuition fee as supply of seats by the universities took place at the higher tuition fees. It also caused the increase in demand of textbooks due to the rightward shift in demand. Here also, the supply of textbook came at a higher price. Besides, the new students wanted accommodation in the areas near to the universities. It drove the rent to the higher side. So, there were a chain of activities, connected with each other and contributed to increase in prices of tuition fees, textbook price and rent.
Since the students spend more upon rent, textbooks and tuition fees, so it is higher for the students. Here, CPI is the market value of the basket of goods. But, it is based upon the price of goods being consumed by the urban consumer. But it has the limitation that it does not exhibit the basket of different sets of consumers such as students. So, the actual price rise may be higher for the students in comparison to the salaried class person having own home. So, CPI is not the true reflection of the price rise for different sets of consumers. Besides, the biases are also present in terms of the quality aspect of the goods. For example, CPI can include an inferior quality food item with a low price to undermine the inflation rate. But, actual good quality food item will cost, higher price than that of the price used in CPI calculation. Another bias is the weight associated with each product that may be different for different people, contributing to the ineffectiveness of the CPI.