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The Index Number ProblemConstruction Theorems$
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Sydney Afriat

Print publication date: 2014

Print ISBN-13: 9780199670581

Published to Oxford Scholarship Online: April 2014

DOI: 10.1093/acprof:oso/9780199670581.001.0001

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The Power Algorithm

The Power Algorithm

(p.16) II The Power Algorithm
The Index Number Problem

S. N. Afriat

Oxford University Press

This chapter discusses the power algorithm central to the proposed method for solving the Index Number Problem. It explains the construction of a fitting constant returns utility as provided by the Conical Utility Construction Theorem (CUCT), comparable with the ordinary UCT (or ‘Afriat's Theorem’) except that the utility has to be constant returns; and what a price index should have to do with such a utility. It shows that with the New Formula, price levels enter into the construction of a hypothetical underlying utility which fits the given demand data and represents all these indices together as true.

Keywords:   power test, Conical Utility Construction Theorem, Afriat's Theorem, price index, price levels

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