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## At What Price?: Conceptualizing and Measuring Cost-of-Living and Price Indexes (2002) Commission on Behavioral and Social Sciences and Education (CBASSE)

### Citation Manager

. "Glossary." At What Price?: Conceptualizing and Measuring Cost-of-Living and Price Indexes. Washington, DC: The National Academies Press, 2002.

 Page 310

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At What Price?: Conceptualizing and Measuring Cost-of-Living and Price Indexes

by manufacturers, is subtracted from the change in the observed price paid by consumers.

Fisher ideal index

A superlative index derived as the geometric mean (the square root of the product) of the Paasche index and the Laspeyres index.

Fixed-weight index

An index constructed as the ratio of the cost of purchasing a basket of goods and services at the prices of one period (or in one location) to the cost of purchasing that same basket at the prices of a subsequent period (or different location). The set of weights assigned to the prices of items in the basket remains the same in each period (or location).

Geometric mean formula

A method for combining price quotes, currently used in the CPI for about 61 percent (by weight) of basic item indexes, that uses a set of fixed-expenditure (as opposed to quantity) proportions as weights for averaging individual prices within a basic index. Fixing relative expenditure proportions implies that customers substitute among specific items (in response to changing prices) in such a way that the share of expenditure on each item category remains constant.

A method that uses regression technique to separate out the effect of changed item quality on its observed price by establishing a relationship between a good’s characteristics and its price. See direct hedonic method, indirect hedonic method.

Homothetic preferences

A theoretical assumption positing that a consumer ranks different bundles of goods the same no matter what her level of living so that the rate at which a person is prepared to trade one good for another is independent of whether the person is rich or poor; it also implies that, as people become better off, they simply scale up their purchases without changing the pattern of consumption.

Index (chain) drift

The divergence between a chained index and a fixed-weight index caused by the linking of indexes with different strata weights.

Index formula

A formula that dictates the exact way in which prices and expenditure shares are combined to calculate a price index.

Indirect hedonic method

In hedonic quality adjustment, a technique that involves adjusting, post hoc, the observed price difference between an outgoing item and a replacement item based on the portion of the price change attributable to a changed characteristic. The magnitude of the adjustment is determined by

 Page 310
 Front Matter (R1-R16) Executive Summary (1-12) 1 Introduction (13-37) 2 Conceptual Foundations for Price and Cost-of-Living Indexes (38-93) 3 Index Domain (94-105) 4 Evolving Market Baskets: Adjusting Indexes to Account for Quality Change (106-154) 5 New Goods and New Outlets (155-177) 6 The Special Case of Medical Services (178-190) 7 Index Design and Index Purpose (191-221) 8 Whose Index? Aggregating Across Households (222-251) 9 Data Collection for CPI Construction (252-282) Appendix: Statistical Definition and Estimation of Price Indexes (283-292) References (293-306) Glossary (307-314) Biographical Sketches of Panel Members and Staff (315-318) Index (319-332)