Final answer:
The claim that a Paasche price index portrays price changes as more favorable for consumers than they really are is false. The Paasche index reflects current consumption patterns and new goods introduction, unlike the CPI, which can overstate inflation due to its fixed basket approach.
Step-by-step explanation:
It is false to claim that the Paasche price index makes price changes seem better for the consumer than they really are. The statement in the question may be mixing the Paasche index with other indices such as the Consumer Price Index (CPI), which is known to have a quality/new goods bias. Inflation calculated using a fixed basket of goods over time, which is a characteristic of the CPI, can indeed overstate the true rise in the cost of living. This overstatement happens because it does not account for improvements in the quality of existing goods, the invention of new goods, or changes in consumer spending patterns.
By contrast, the Paasche index uses the current period's basket of goods and services to weight prices. This means that it is able to reflect the changes in spending patterns and the introduction of new goods. Therefore, it does not necessarily make price changes seem any better or worse for consumers; it's simply a different method of measuring price levels and inflation.