What does a price index measure?

A price index is a statistical measure that helps to track changes in the price levels of a basket of goods and services over a specific time frame. When you select the option that reflects the change in price of an item over time, it highlights the primary function of a price index: to provide insight into how prices fluctuate, which is essential for understanding inflation and economic trends.

By observing this change, analysts and policymakers can make informed decisions regarding economic policy, cost of living adjustments, and purchasing power. This understanding is crucial for businesses and consumers alike, as it directly impacts budgeting, investment decisions, and overall economic health.

While the other options touch on related concepts, they each miss the core purpose of a price index. For instance, the absolute price of an item represents a snapshot at a specific point in time rather than its trajectory. The quantity of items sold pertains to sales volume rather than price changes, and inventory levels focus on stock availability rather than price trends. Thus, the selected answer accurately defines the essential role of a price index in economic analysis.