Question

Eight major groups of goods and services are included in the Consumer Price Index (CPI):

1. Food and Beverages (breakfast cereal, milk, coffee, chicken, wine, full-service meals, snacks)

2. Housing (rent of primary residence, owners' equivalent rent, fuel oil, bedroom furniture)

3. Apparel (men's, women's, kid's clothes, jewelry)

4. Transportation (vehicles, airline tickets, gas, vehicle insurance)

5. Medical Care (prescription drugs, medical supplies, doctor's services, eyeglasses and eye care, hospital services)

6. Recreation (T.V., toys, pets and pet products, sports equipment, admissions)

7. Education and Communication (school tuition, postage, phone services, computers and accessories)

8. Other Goods and Services (tobacco and accessories, haircuts and other personal services, funeral expenses)

Using the list of eight groups of goods and services, determine which major group of the CPI the following item belongs to.

Diamond earrings for your grandmother.

This is in the ___________________ category.

Answer 1

Diamond earrings fall into the 'Apparel' category of the CPI, which includes items like clothing and jewelry and constitutes 3.3% of the index.

Step-by-step explanation:

A consumer price index (CPI) is a price index, the price of a weighted average market basket of consumer goods and services purchased by households. Changes in measured CPI track changes in prices over time. The CPI is calculated by using a representative basket of goods and services. The basket is updated periodically to reflect changes in consumer spending habits. The prices of the goods and services in the basket are collected monthly from a sample of retail and service establishments. The prices are then adjusted for changes in quality or features.

The diamond earrings for your grandmother would fall into the Apparel category of the Consumer Price Index (CPI). This category includes clothing items and jewelry, which is specifically mentioned as a part of the Apparel classification in the CPI. The weighting of the CPI components shows that Apparel makes up 3.3% of the index, which is one of the smaller portions compared to other categories like Housing and Food and Beverage.