The Konus and Frisch Expenditure-Based Cost of Living Indices

Abstract

In order to solidify important concepts, we shall first present some index concepts in the absence of an income tax. The key to constructing an expenditure-based cost of living index is the expenditure function examined in Chapter Three, namely ${\text{e}}\left( {{\text{P,u}}} \right) \equiv \frac{{\min }}{{\text{X}}}\left\{ {{\text{P}} \bullet {\text{X}}\left| {{\text{U}}\left( {\text{X}} \right) \geqslant {\text{u}}} \right.} \right\}$. This function defines the minimum expenditures on goods and leisure necessary to purchase the standard of living corresponding to u.