The Economic Theory of Price Indices

The Economic Theory of Price Indices: Two Essays on the Effects of Taste, Quality, and Technological Change is concerned with the effects of consumer taste, product quality, and technological change on price indices. Special attention is paid on technological change in the simple two-sector production model of Rybczynski and Uzawa. The effects of the general case of changing factor supplies and factor-augmenting change on the real national output deflator are also examined.

Comprised of two essays, this book begins with an analysis of the pure theory of the true cost-of-living index, which may be considered as an idealization of indices like the consumer price index and others of that type. The essay explores how the true cost-of-living index is affected by changes in consumer taste, quality changes in purchased goods, and the introduction of new goods into the market place. The second essay deals with the pure theory of the national output deflator and provides a foundation for the measurement of real national output (or product). It shows that the usual inequalities relating Paasche and Laspeyres to the true index are reversed (from what they are in cost-of-living theory) for the case of production. It also assesses the implications of changing production possibilities caused by technological change or a change in factor supplies.

This monograph will be a useful resource for mathematicians, economists, and others interested in economic theory and mathematical economics.

Preface

Acknowledgments

Essay I Taste and Quality Change in the Pure Theory of the True Cost-of-Living Index

I. Introduction

II. The Theory of the True Cost-of-Living Index and Intertemporal Comparison of Welfare

III. Taste Change

IV. New Goods and Other Corner Solutions

V. Quality Change

Footnotes for Essay I

References for Essay I

Essay II The Pure Theory of the National Output Deflator

I. Introduction

II. Real Output Indices and Production Possibility Maps

III. Which Index Is Relevant?

IV. Paasche and Laspeyres Indices

V. Market Imperfections and Underutilized Resources

VI. The Indices: Formal Description

VII. Hicks-Neutral Technological Change

VIII. Changing Factor Supplies and Factor-Augmenting Technological Change: The Two-Sector Model

IX. Changing Factor Supplies and Factor-Augmenting Technological Change: The General Case

X. Factor-Augmenting Technological Change in a Single Sector of the Two-Sector Model

XI. General Technological Change

XII. New Goods, Disappearing Goods, and Corner Solutions

XIII. Quality Changes

Footnotes for Essay II

References for Essay II

Index