wing cases, explain clearly how the CPI might misrepresent changes in consumer prices (Commodity substitution bias, Introduction of new goods, or Unmeasured quality changes). In each case, speculate as to whether CPI overstates or understates consumer expenses. (a) By 1990, expensive personal computers became a commo
4. In each of the following cases, explain clearly how the
(a) By 1990, expensive personal computers became a common expenditure in consumers’ baskets. However, some governments were still calculating the consumer’s basket using a 1975 survey.
(b) Between 2007 and 2015, there were significant improvements in smartphones.
The price of CPI computers, equipment, and home-based devices is collected by CPI data collectors, and evaluated using the index by analysts at the Washington Office.
Data collectors return monthly to the sold-out locations to obtain prices for selected items, including any changes or discounts. Any features of the modified selected items are identified and updated. When the price of an item changes, the CPI analyst tries to find the reason for the change; however, if the characteristics remain unchanged, the CPI usually indicates a price change without correction.
Price change
If a replacement is required and similarly the same as the predecessor, the CPI treats any price differences between the replacement item and the predecessor as a pure price change. If the characteristics of the item are changed and the reported change is the one that gives the minimum value to the buyer, the CPI will indicate an uncorrected price change. This is how a commonly used item in the CPI is used to show the change in price from one month to the next.
However, unlike other categories of items in the CPI, computers do not follow these standard modification processes as computer manufacturers continue to release new high-quality new models. If the input procedures for most other CPI items were followed, the quality of computers reported in terms of prices would drop to a very low level of quality in the short term.
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