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Simple English definitions for legal terms
price index
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A quick definition of price index:
A price index is a way to measure how much things cost compared to a certain time period, like a base year. It helps us understand if prices are going up or down over time. There are different types of price indexes, like the consumer price index and the producer price index.
A more thorough explanation:
A price index is a measure of the average prices of goods and services in an economy. It is usually expressed as a percentage of the average price prevailing at some other time, such as a base year. The purpose of a price index is to track changes in the cost of living or the cost of production over time.
Two common types of price indexes are the Consumer Price Index (CPI) and the Producer Price Index (PPI).
- The CPI measures the average price of a basket of goods and services purchased by households. It is used to track changes in the cost of living over time. For example, if the CPI in 2020 is 120 and the base year is 2010, this means that the cost of living has increased by 20% since 2010.
- The PPI measures the average price of goods and services sold by producers. It is used to track changes in the cost of production over time. For example, if the PPI in 2020 is 110 and the base year is 2015, this means that the cost of production has increased by 10% since 2015.
These examples illustrate how price indexes can be used to measure changes in prices over time. By comparing the current price level to a base year, we can see how much prices have increased or decreased. This information is useful for policymakers, businesses, and consumers who need to make decisions based on the current economic conditions.