Basket of Goods
What it is:
In economics, a basket of goods is a group of items used for price comparisons or other analytical purposes.
How it works (Example):
The consumer price index (CPI) is the most common measure of price levels. The measures the change in the retail prices of approximately 80,000 specific goods and services -- the basket of goods. An example of a specific good in a basket of goods could be a 4.4-pound bag of "extra-fancy"-grade Golden Delicious apples to represent the "Apples" category. The goods and services in a basket of goods fall into eight major categories: food and beverage, housing, apparel, transportation, medical care, education and communication, recreation and other. The updates the basket of goods every few years to remove obsolete items.
To get the data, Bureau of Labor Statistics (BLS) economic assistants or visit approximately 23,000 stores and contact approximately 50,000 or tenants in 87 urban areas every month to get prices on the items in the basket. Commodity specialists review the information and make adjustments for changes in size or quality of the product. The then compares the cost of the basket to the same basket in the starting year (usually 1982-1984).
Why it Matters:
In inflation and thus affect the monetary and fiscal policies of governments. The prices of the items in a basket of goods also directly or indirectly affect nearly every financial decision, from consumer choices to lending rates, from to prices, and from methods to contract language., the price of a basket of goods is very telling. It can indicate the level of