Why is hypothetical basket of goods use to measure inflation

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1. Why is a hypothetical "basket" of goods used to measure inflation?

a. Using multiple goods allows consumers to compare goods to one another.

b. Consumers can see how inflation affects some goods and not others.

c. Using a hypothetical basket allows consumers to adjust their pricing expectations.

d. Consumers can see the general increase in price over time by using a basket of goods.

2. Suppose that the U.S. textile industry is competitive and there is no international trade in textiles. In long run equilibrium, the price per unit of cloth is $30.

a. Describe the equilibrium using graphs for the entire market and for an individual producer.

b. Assuming that U.S. textile producers have large fixed costs, what is the short-run effect of these imports n the quantity produce by an individual producer? What is the short-rub effect on profits? Illustrate you answer with a graph.

c. What is the long-run effect on the number of U.S. firms in the industry?

Reference no: EM131163547

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