You Using a Laspeyres (Fixed-Weight) Price Index to Compare Price

question 29

Multiple Choice

You using a Laspeyres (fixed-weight) price index to compare price changes over time, and the index is based on consumption bundles from 2005 when energy costs were lower and housing costs were higher. Your results are likely to:

• A) overstate changes in the cost of living because the weight assigned to energy is too small.
• B) overstate changes in the cost of living because the weight assigned to energy is too large.
• C) understate changes in the cost of living because the weight assigned to housing is too small.
• D) understate changes in the cost of living because the weigh assigned to housing is too large.

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Definitions:

Simultaneous Game

A type of strategic game in game theory where all players make decisions or choose their strategies at the same time without knowledge of the others' choices.

Utility

A measure of satisfaction or happiness that consumers receive from consuming goods and services.

Prisoner's Dilemma

A fundamental problem in game theory demonstrating that two people might not cooperate even if it is in both their best interests to do so.

Nash Equilibrium

An idea in game theory where a player cannot benefit by altering their strategy alone while the strategies of other players stay the same.