The question requires us to define the market basket.
Explanation of Solution
Economists monitor changes in the cost of a typical customer's consumption bundle, or a typical set of goods and services purchased, to evaluate average price changes for goods and services. A market basket is a hypothetical consumption bundle that is used to estimate the changes in the general price level. For example, a market basket is the composition of a consumer’s purchases in a year which consists of 10 pens, 5 pencils, and 10 notebooks.
Therefore, a market basket is a hypothetical bundle of consumption goods.
Option “b” is correct.
Other options are incorrect because:
a) A market basket consists of a bundle of goods and services purchased by consumers. It doesn’t include all goods and services.
c) A market basket consists of a bundle purchased by consumers, not producers.
d) It is a fixed set of goods and services.
e) The set of market baskets changes from time to time.
Chapter 15 Solutions
Krugman's Economics For The Ap® Course
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