STATISTICS IN SUMMARY
Chapter Specifics
• An index number describes the value of a variable relative to its value at some base period.
• A fixed market basket price index is an index number that describes the total cost of a collection of goods and services.
• Think of the government’s Consumer Price Index (CPI) as a fixed market basket price index for the collection of all the goods and services that consumers buy.
• Because the CPI shows how consumer prices change over time, we can use it to change a dollar amount at one time into the amount at another time that has the same buying power. This is needed to compare dollar values from different times in real terms.
• The details of the CPI are complex. It uses data from several large sample surveys. It is not a true fixed market basket price index because of adjustments for changing buying habits, new products, and improved quality.
• Government statistical offices produce data needed for government policy and decisions by businesses and individuals. The data should be accurate, timely, and free from political interference. Citizens, therefore, have a stake in the competence and independence of government statistical offices.
In Chapters 10 through 15, we studied methods for summarizing large amounts of data to help us see what the data are telling us. In this chapter, we discussed numbers that summarize large amounts of data on consumers to help us see what these data are telling us about the costs of goods and services. Because these index numbers, in particular the CPI, are used by the government and media to describe the cost of living, understanding how they are computed and what they represent will help us be better-informed citizens.
CASE STUDY EVALUATED The average CPI for 1931 was 15.2. The average CPI for 1976 and 2005 can be found in Table 16.1. Use what you have learned in this chapter to convert Babe Ruth’s 1931 salary and Hank Aaron’s 1976 salary, given in the Case Study at the beginning of this chapter, to 2005 dollars. Who had the largest salary in terms of 2005 dollars: Bonds, Aaron, or Ruth?
Online Resources
• The StatBoards video Fixed Market Basket Price Indexes computes price indexes for several examples.
• The StatBoards video Using the CPI compares current prices with historical prices in several examples.