Final answer:
The market basket used by the U.S. Bureau of Labor Statistics includes a variety of goods and services to represent the average American household's consumption. The Consumer Expenditure Survey data, covering over 7,000 households and divided into over 200 categories, helps determine this basket for calculating the Consumer Price Index (CPI).
Step-by-step explanation:
The market basket of goods and services used by the U.S. Bureau of Labor Statistics is designed to be representative of the purchases of the typical American household. This basket is a hypothetical group of various items with specific quantities of each, meant to reflect the 'typical' set of consumer purchases. The process of defining this basket involves using data from the Consumer Expenditure Survey, which captures detailed spending habits from about 7,000 households across the nation.
Statisticians from the BLS break down consumer expenditures into eight major groups. These groups are further split into over 200 individual item categories. This comprehensive approach ensures that the basket reflects a range of goods and services that Americans buy. For the purpose of measuring inflation through the Consumer Price Index (CPI), the BLS uses the years 1982-1984 as the base period for comparison.
It's important to note that while this basket reflects the average consumption patterns, the CPI calculation also considers the subtle differences between the total cost of the basket over time and the actual cost of living, which accounts for the satisfaction or utility derived from consumption.