Which of the Following Is True of a Price Index

question 38

Multiple Choice

Which of the following is true of a price index that uses a fixed market basket?

• A) It accurately predicts the impact of rising prices when purchases are made at superstores.
• B) It overstates the importance of items that fall in price.
• C) It takes into account changes in quality while computing price changes.
• D) It excludes new goods and services.

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Definitions:

Fixed Cost

A cost that does not change with an increase or decrease in the amount of goods or services produced or sold.

Marginal Cost

The escalation in the entire cost linked to the output of an additional unit.

Average Cost

The cost per unit is determined by dividing the overall production cost by the total units produced.

Average Total Cost

The total cost of production (fixed and variable costs combined) divided by the quantity of output produced.