I don't think RPI/CPI measure utility at all. (If prices go up, the
questions of how it affects my utility depends on whether I am a
seller or a buyer.)
It's an average - that's what it is.
JB
On 2 February 2012 15:48, Wells, Julian <[log in to unmask]> wrote:
> The other thing that seems worth pointing out is that the existing system(s) appear to be an uneasy and unacknowledged compromise between two different objectives, namely
>
> (1) constructing an index of prices
>
> (2) constructing a measure of changes in well-being
>
> Hence the ludicrous statements in mainstream textbooks to the effect that Paasche and Laspeyres indices "over (under) estimate inflation".
>
> What they actually approximate, more or less well, is changes in the neo-classical economists' fabled "utility".
>
> This is a thoroughly tendentious concept of well-being which, in so far as it has any more content than "mysterious quality which makes people want to buy things" seems to amount to "ability to consume purchased commodities" -- from which follows the concern with substitution resulting from changes in *relative* prices.
>
> There's an excellent introduction to all this in Chapter 4 of Himmelweit et al. (2001) "Microeconomics: neo-classical and institutionalist perspectives on economic behaviour".
>
>
> Julian
>
>
>
>
>
>
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