Talk:Price level

Price index a synonym

I wonder whether "price level" is just a synonym for price index or consumer price index. Googling finds 1 730 000 hits for "price level", so the term is in use at least. --Dan Polansky (talk) 13:24, 20 January 2008 (UTC)

Good question. Most of the editors of this article have treated it as such. But the price level is a more general notion — some presumed purely nominal component of prices. Those who speak and write of a price level don't necessarily have any actual index in mind, and may cleave to the notion that there is a price level even if shown that no index would always work as a price level ex ante. —SlamDiego_←T 09:33, 30 June 2008 (UTC)

Initial claim is simply wrong

The first string of equations cannot possibly be an assumption, because it is a tautology. Given any P>0 there is a set p' that makes the tautology true, namely p'=p/P. To turn it into an assumption we first need to normalize the p' somehow. And even then it is still a tautology, but at least it defines a unique P.

So to add actual economic content we need some kind of real economic assumption, e.g. that price ratios are more or less fixed by technology and preferences and endowments. If price ratios are roughly fixed then P takes on real meaning for comparisons over time: extracting P shows that, roughly speaking, nothing real has changed when price levels change. Or else it allows you to detect real changes by looking at scalar changes in p' rather than vector changes in relative prices.

I haven't time to visit sources to see if there is a standard approach, but someone should, since this one is wrong on its face. Burressd (talk) 08:25, 17 February 2016 (UTC)