Suppose the quality of beef changes over time, but the quality change goes unmeasured for the purpose of computing the consumer price index. In which of the following instances would the bias resulting from the unmeasured quality change be least severe?

A. The quality of beef deteriorates and beef becomes less expensive relative to other goods.

B. The quality of beef deteriorates and beef becomes more expensive relative to other goods.

C. The quality of beef improves and the price of beef relative to other prices remains unchanged.

D. The quality of beef improves and feef becomes more expensive relative to other goods.

Question

Business

Alfred Jensen

21 December, 01:48

Suppose the quality of beef changes over time, but the quality change goes unmeasured for the purpose of computing the consumer price index. In which of the following instances would the bias resulting from the unmeasured quality change be least severe?

A. The quality of beef deteriorates and beef becomes less expensive relative to other goods.

B. The quality of beef deteriorates and beef becomes more expensive relative to other goods.

C. The quality of beef improves and the price of beef relative to other prices remains unchanged.

D. The quality of beef improves and feef becomes more expensive relative to other goods.

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Answers (1)

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Matilda Cuevas · Answer 1

The answer is: C) The quality of beef improves and the price of beef relative to other prices remains unchanged.

Explanation:

The consumer price index measures the changes in the relative prices of a basket of goods and not the quality of those goods. So any change in the quality of the goods that make the CPI basket will go unnoticed as long as its relative prices remain the same.