Ch. 6

• Index numbers are not directly measurable, but represent relative changes
• Present use of index numbers

  • Measuring trends in a wide variety of areas such as stock market prices, cost of living, industrial and agricultural production, changes in exports and imports etc.
• Index numbers are one of the most used statistical tools in Economics
• Index numbers were originally developed to measure changes in the price level
• Index number

  A device to measure changes in an economic variable (or group of variables) over a period of time
• Economic variable

  A variable that is affected by economic conditions
• Original use of index numbers

  • Measuring changes in the price level
• Marginal utility is the amount of extra pleasure or satisfaction derived from consuming one more unit of a product.
• The law of diminishing marginal utility states that additional units of a good will yield less satisfaction than previous units.
• Substitution effect refers to the change in quantity demanded as a result of a price change, holding constant all other factors that affect demand.