Surveying University Student Standards in Economics

It is believed that changes in the varieties of an imported product might have effects on the import price index for the product that are similar to the effects of new goods on the cost of living. Recently, a new index number formula that incorporates the effects of new goods has been suggested by Nahm (1998a). The index number formula is a known function of available values, and it is exact for the constant-elasticity-of-substitution (CES) preference ordering even when there exist new and disappeared goods. The formula has been applied to each of eight selected U.S. import products to compute each product’s import price index. As each product has several varieties and the set of varieties changes over time, a price index for the product should reflect changes in the choice set. The new index formula is designed to capture such effects. The results show that the indices based on the new index formula closely trace those based on a sophisticated econometric model.