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A market basket or commodity bundle is a fixed list of items, in given proportions. Its most common use is to track the progress of
inflation In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduct ...
in an
economy An economy is an area of the production, distribution and trade, as well as consumption of goods and services. In general, it is defined as a social domain that emphasize the practices, discourses, and material expressions associated with th ...
or specific market. That is, to measure the changes in the value of money over time. A market basket is also used with the theory of purchasing price parity to measure the value of money in different places.


Consumer basket

The most common type of market basket is the basket of
consumer goods A final good or consumer good is a final product ready for sale that is used by the consumer to satisfy current wants or needs, unlike a intermediate good, which is used to produce other goods. A microwave oven or a bicycle is a final good, b ...
used to define the
Consumer Price Index A consumer price index (CPI) is a price index, the price of a weighted average market basket of consumer goods and services purchased by households. Changes in measured CPI track changes in prices over time. Overview A CPI is a statisti ...
(CPI). It is a sample of
goods In economics, goods are items that satisfy human wants and provide utility, for example, to a consumer making a purchase of a satisfying product. A common distinction is made between goods which are transferable, and services, which are not ...
and services, offered at the
consumer market A consumer is a person or a group who intends to order, or uses purchased goods, products, or services primarily for personal, social, family, household and similar needs, who is not directly related to entrepreneurial or business activities. ...
. In the
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continental United States, primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., ...
, the sample is determined by Consumer Expenditure Surveys conducted by the
Bureau of Labor Statistics The Bureau of Labor Statistics (BLS) is a unit of the United States Department of Labor. It is the principal fact-finding agency for the U.S. government in the broad field of labor economics and statistics and serves as a principal agency of ...
. The price collection is conducted by data collectors on a monthly basis, and is processed further by commodity specialists. Examples of categories included in the basket are: * Food and Beverages (breakfast cereal, milk, coffee, chicken, wine, full service meals, snacks) * Housing (rent of primary residence, owners' equivalent rent, fuel oil, bedroom furniture, chairs) * Apparel (shirts and sweaters, pants, shorts, dresses, jewelry) * Transportation (new vehicles, airline fares, gasoline, motor vehicle insurance) * Medical Care (prescription drugs and medical supplies, physicians' services, eyeglasses and eye care, hospital services) * Recreation (televisions, toys, pets and pet products, sports equipment, admissions) * Education and Communication (college tuition, postage, telephone services, computer software and accessories) * Other goods and Services (tobacco and smoking products, haircuts and other personal services, funeral expenses)


Other baskets

Other types of baskets are used to define the Producer Price Index (PPI), previously known as the Wholesale Price Index (WPI), as well as various commodity price indices. The
GDP deflator In economics, the GDP deflator (implicit price deflator) is a measure of the money price of all new, domestically produced, final goods and services in an economy in a year relative to the real value of them. It can be used as a measure of the va ...
essentially uses a basket made of every good in the economy, in proportion to the amount produced.


Issues

When measuring inflation or PPP, there are difficulties in selecting the goods that are common at both places in time (for inflation) or space (for PPP). When measuring inflation, we must find goods that exist at different points in time and, ideally, have similar utility to consumers at those times. This is difficult. For example, cars might be common purchases today, but they didn't exist in 1900, when horses were used for transportation. So, even though transportation is important, putting a car in the basket is problematic. This problem exists over short timespans, because the concept of "car" changes with time. The cars of today last longer and go faster than the cars of only a few years ago. Researchers measuring inflation usually include "transportation" in their basket, because it is an important consumer purchase, but they must account for these differences in the transportation by other means. When measuring PPP, there are similar issues. In different parts of the world, different goods might play similar roles in the economy. So, a researcher measuring PPP might need to account for rice's popularity in China and corn (maize)'s popularity in the USA. Also, fashion and culture may dictate that certain goods may have drastically different utilities in different places. For example, beef is not valued in Hindu areas and pork is not valued in Muslim areas. Some approaches account for these differences by having two baskets and averaging the inflation/PPP of them. For example, a basket of goods consumers bought in 1900 and a separate basket of goods consumers buy today. After computing the price of each basket in 1900 and today, the inflation over the time period is an average of the increase in the two baskets. A common usage of this two-basket-averaging is the
GDP deflator In economics, the GDP deflator (implicit price deflator) is a measure of the money price of all new, domestically produced, final goods and services in an economy in a year relative to the real value of them. It can be used as a measure of the va ...
, where the basket contains every good produced in the economy at a given point in time.


See also

* Market basket analysis - a distinct concept in data mining involving the analysis of items frequently purchased together.


References


DM Review article on Market basket analysis
;Specific {{Authority control Price indices Financial markets