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Consumer Price Index

content of the product and any dangers associated with tember 29, 2005, from
the product. The Truth-in-Lending Act required full dis- http://consumerlawpage.com/article/lobby.shtml.
closure of all costs and the annual percentage rate on “Consumer Rights.” Retrieved September 29, 2005, from
installment loans. Prior to Truth-in-Lending, the actual http://www.nolo.com.
cost was hidden and confusing to calculate. Another sig-
nificant piece of legislation, the Magnuson-Moss War-
Mary Jean Lush
ranty Act, requires a warranty that states that a product Val Hinton
will meet performance standards and affirms that a war-
ranty can be stated or implied. Other regulation took
place at the state level. Forty states have a cooling-off law,
which allows a consumer to change his or her mind when CONSUMER PRICE
purchasing products from direct salespeople. INDEX
The second consumer right, the right to safety, is
aimed at injuries caused by using products other than The consumer price index (CPI) provides a method for
automobiles. To address this problem, the government calculating the price changes that consumers and house-
established the Consumer Product Safety Commission hold managers face over a stated period. Even though the
(CPSC) in 1972. The CPSC has jurisdiction over 13,000 CPI focuses primarily on consumer prices, its calculations
diverse products. The powers of the CPSC include the are also of great direct value to governmental and business
right to require warning labels, to establish standards of groups. Yet, at the same time, the CPI is the most com-
performance, to require immediate notification of a defec- monly used price-level indicator. The CPI is a nationwide
tive product, and to mandate product testing. However, measure of a weighted measure of prices. It has the capa-
its greatest power is product recall. bility of consistently measuring changes in prices over
periods.
The right of consumer choice means the consumer
should have a range of products from various companies The CPI serves two population groups: urban wage
to choose from when making a purchasing decision. To earners (CPI-U) and clerical workers (CPI-W). The CPI-
ensure these rights, the government has taken a number of U represents about 87 percent of the U.S. population and
actions, such as imposing time limits on patents, looking is based on the expenditures of all families living in urban
at mergers from the standpoint of limiting consumer areas. The CPI-W is a subset of the CPI and is based on
choice, and prohibiting unfair price cutting and other the expenditures of families living in urban areas who
unfair business practices. meet additional requirements. At least one person in the
family has to earn more than one-half of the family’s
The final consumer right is the right to be heard.
Presently, no government agency is responsible for han- income from clerical or hourly wage occupations. The
dling consumer complaints. However, a number of gov- CPI-W represents about 32 percent of the total U.S. pop-
ernment agencies do attempt to protect certain consumer ulation.
rights. The Office of Consumer Affairs publishes a Con-
sumer’s Resource Handbook listing agencies that work in COST-OF-LIVING INDEX
the area of consumer rights. In addition, a number of con- Occasionally the term cost-of-living index is substituted for
sumer groups issue complaints to the government and the term CPI. Nevertheless, to take in all the factors of
industry groups. paying to live would require the inclusion of calculations
The growth of consumerism in the United States has including every consumer’s goods and services. Thousands
not been without opposition. Although corporations have of items are already included, and sheer volume forbids
taken positive steps in many areas, they have also opposed including all of them.
advancement of some consumer rights. Because corpora-
tions can have deep pockets, they are able to appeal court CONSTRUCTION OF THE
cases and slow down litigation. Today, however, because of CONSUMER PRICE INDEX
past successes, the need for consumer protection is not
The basic CPI is calculated monthly by the U.S. Bureau of
nearly as great as it was in previous years.
Labor Statistics. To construct the CPI, a theoretical market
SEE ALSO Consumer Advocacy and Protection basket is filled with several thousands of carefully selected
goods and services that reflect amounts and types of pur-
chases by consumers. The purchases made will be included
BIBLIOGRAPHY
Alexander, Richard (1999). “The Development of Consumer in the calculations on a sample basis. The sample data
Rights in the United States Slowed by the Power of Corpo- come from interviews with several families selected at ran-
rate Political Contributions and Lobbying.” Retrieved Sep- dom from the two population groups: CPI-U and CPI-W.

ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION 147