A Linear Programming Model of the Consumer Price Index Food Component |
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| Authors: | William G. Droms David L Stone |
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| Affiliation: | [William G Droms, D B A, is the John J Powers, Jr, professor of finance School of Business Administration, Georgetown University, Washington, DC 20057 David L Stone is Quality/Risk Analyst at ABB Treasury Center (USA), Inc Four Stamford Forum, Stamford, CT 06901] |
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| Abstract: | A bstract A linear programming model is used to measure the rate of inflation in the food component of the consumer price index A diet model to minimize the cost of a diet subject to constraints on nutritive requirements, variety, pal-atabihty, and menu-function is constructed and the rates of increase in a strict minimum cost model and an expanded constraint model are measured for the period 1980-87 Consistent with the consumer utility literature, it is found that the current Laspeyres index approach to measuring the cost of living in fact provides an upper limit on true cost of living increases Results also show that the cost of maintaining a minimum level of subsistence increases more rapidly than the cost of a more palatable diet Finally, the results show that in fact there is very little room for substitution among food items within a reasonable diet model |
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