Prices, location and spread
Prices, location and spread

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Prices, location and spread

1.1 Data on prices

In order to measure how prices change, we need data on prices and some way of measuring their overall location. Price data take many forms.

In examining the overall location, prices of all goods are relevant, but some are more important than others. Ballpoint pens are relatively unimportant in most people’s shopping baskets, coffee prices are unimportant for tea drinkers, and chicken prices are of little concern to vegetarians. The first batch of price data we will look at is coffee prices.

Example 1 Price data for jars of coffee

Table 1 shows prices of a 100 g jar of a well-known brand of instant coffee obtained in 15 different shops in Milton Keynes on the same day in February 2012.

Table 1 Coffee prices (in pence)

299

315

268

269

295

295

369

275

268

295

279

268

268

295

305

There are several points to note concerning these prices.

  • They relate to a particular brand of coffee. You might expect the price to vary between brands.

  • They relate to a standard 100 g jar. You might expect the price per gram of this brand of coffee to vary depending upon the size of the jar – larger jars are often cheaper (per gram).

  • They relate to a particular locality. You might expect the price to vary depending upon where you buy the coffee (e.g. central London, a suburb, a provincial town, a country village or a Hebridean island).

  • They relate to a particular day. You might expect the price to vary from time to time depending upon changes in the cost of raw coffee beans, costs of production and distribution, and the availability of special offers.

Nevertheless, although we have data for a fixed brand of coffee, size of jar, locality and date of purchase, this batch of prices still varies from the lower extreme of 268p to the upper extreme of 369p. (In symbols: uppercase E subscript uppercase L end = 268 and uppercase E subscript uppercase U end = 369.) One of the most likely reasons for this is that the prices were collected from different kinds of shops (e.g. supermarket, petrol station, ethnic grocery and corner shop).

For all these reasons, it is impossible to state exactly what the price of this brand of instant coffee is. Yet its price is, in its own small way, relevant to the question: Are people getting better or worse off? That is, if you drink this particular coffee, then changes in its price in your locality will affect your cost of living. Similarly, your costs and economic well-being will also be affected by what happens to the prices of all the other things you need or like to consume.

On the other hand, someone who never buys instant coffee will be unaffected by any change in its price; they will be much more interested in what happens to the prices of alternative products such as ground coffee, tea, milk or fruit juice. The problem of measuring the effect of price changes on individuals with different consumption patterns will be considered in Section 5.

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