[This is part of the series: The Complete Guide To Economics 101.]
What is a price index?
A Price Index is a quantitative figure that measures what happens to prices over time.
This is done by using a “market basket” of goods.
And a market basket of goods compares, for instance, prices in 1990 to prices today.
A market basket might include the average prices of:
- A gallon of gasoline
A price index like this converts prices back into a base year, allowing you to metaphorically compare apples to apples.