Which of the Following Is True About the Comparison Between

question 5

Multiple Choice

Which of the following is true about the comparison between the CPI and the PPI?

• A) Both indices are based on the same basket of goods and services.
• B) Sales and excise taxes are included in the PPI, but they are not included in the CPI.
• C) The PPI is more commonly used to adjust wages for changes in the cost of living than the CPI.
• D) Unlike the CPI that uses prices people pay, the PPI uses the prices measured at the wholesale level.

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Definitions:

Tiebout Hypothesis

A theory suggesting that people will migrate to local jurisdictions that best satisfy their preferences for public goods and services, reflecting a form of market efficiency in local government.

Public Good

A good that is non-excludable and non-rivalrous, meaning it can be used by many people simultaneously without depletion.

Free-rider Problem

A situation in which some individuals consume more than their fair share of a public resource, or shoulder less of the cost of its production, benefiting from goods or services without paying for them.

Nonexcludable Problem

An issue characteristic of public goods, where it is not possible to prevent individuals who do not pay from consuming a good or service.