Chapter 6 - Assignment 2: The CPI and an Individual's Cost of Living

Read: "The Consumer Price Index--Why the Published Averages Don't Always Match An Individual's Inflation Experience."

  1. Why does the mix of goods that you buy determine how well the CPI explains the effect of inflation on the purchasing power of your income?
  2. Why does geographical location have an effect on how well the CPI measures changes in your cost of living?
  3. Suppose that the price of heating oil rises at twice the rate of inflation. For which portions of the country would the CPI overstate the effect of inflation? For which portions of the country would the effect of inflation be understated?
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