CPI Weights Based on Consumer Spending Patterns

Steps:

• Recall that CPI measures average price changes for a basket of goods and services.
• Understand that the basket is weighted to reflect typical household consumption.
• Identify weights as the relative importance of each item in total spending.
• Match this to option C, which describes proportions of income spent on goods.

Why C is correct:

• CPI weights are determined by the share of total consumer expenditure on each good, as defined by the Laspeyres index formula where weights are base-period expenditure proportions.

Why the others are wrong:

• A: Income levels influence purchasing power but not the specific weights in the basket.
• B: Price increases are what CPI tracks, not what sets the weights.
• D: Savings represent unspent income, irrelevant to weighting consumption items.

Final answer: C