Principles of Economics- Mankiw (5th) 501

Principles of Economics- Mankiw (5th) 501 - CHAPTER 23...

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CHAPTER 23 MEASURING THE COST OF LIVING 517 to include VCRs, and subsequently the index reflected changes in VCR prices. But the reduction in the cost of living associated with the initial introduction of the VCR never showed up in the index. The third problem with the consumer price index is unmeasured quality change. If the quality of a good deteriorates from one year to the next, the value of a dollar falls, even if the price of the good stays the same. Similarly, if the quality rises from one year to the next, the value of a dollar rises. The Bureau of Labor Statistics does its best to account for quality change. When the quality of a good in the basket changes—for example, when a car model has more horsepower or gets better gas mileage from one year to the next—the BLS adjusts the price of the good to account for the quality change. It is, in essence, trying to compute the price of a basket of goods of constant quality. Despite these efforts, changes in quality remain a problem, because quality is so hard to measure. names) price-taker Mary Ann Latter
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This note was uploaded on 07/30/2010 for the course ECON 120 taught by Professor Abijian during the Spring '10 term at Mesa CC.

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