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What is a Market Basket?

A market basket is a collection of goods and services used to track price changes and consumer spending patterns over time. It reflects the average consumer's expenditures, serving as a barometer for economic health. Understanding its composition can reveal much about societal trends and inflation. How does the market basket affect your personal finances? Let's examine its impact together.
Leo Zimmermann
Leo Zimmermann

"Market basket" is a term used in finance and marketing to describe a set of goods purchased together by a real or hypothetical consumer. It can refer to individual market baskets, in which case it describes items that are often purchased together, or to a theoretical market basket, which represents some more general fact about the economy. Market baskets are also sometimes called commodity bundles.

The study of individual market baskets is called market basket analysis, or affinity analysis. Market basket analysis takes place in marketing and retail. The goal is to collect data about what items are purchased together—in the same literal basket—in order to sell them more effectively. For example, if a company learns that two items (say, tuna fish and hot sauce) are often purchased together, they might start displaying them next to each other or offering discounts if shoppers buy both of them. Customer loyalty programs have dramatically expanded the ability of stores to collect this type of information.

Man climbing a rope
Man climbing a rope

Market basket analysis can be especially effective online, where items do not have to coexist in physical space. A widely cited example of effective market basket analysis is the online retailer Amazon, which suggests products that a consumer might like based on the one he or she is currently looking at. It also offers package deals for items that people tend to buy together.

Another popular example of market basket analysis, which may be completely mythical, concerns the placement of beer and diapers at the front of a supermarket on Friday evenings. Supposedly, this attracts the demographic of men instructed by their wives to go to the supermarket after work. Instead of just buying diapers, the men may wish to buy beer as well.

Economists and investors use the term "market basket" to describe a more generic set of goods. This concept can stretch beyond a literal market basket with staple purchase like milk and eggs to include expenses like rent and electricity. This tool is used to track inflation, and can be involved in a determination of real wages: how far a worker's paycheck actually goes.

The most common of these market baskets is called the basket of consumer goods. This measurement is used to calculate the Consumer Price Index, which is produced by the United States Bureau of Labor Statistics. The creation of a truly universal market basket is difficult, and the Consumer Price Index, like other attempts to probe the complexity of the market, has limitations. For example, it assesses only costs for goods sold in urban areas.

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