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ch 11
10. Problems and Applications Q6
Indicate which of the problems in the construction of the CPI are illustrated in each of the following situations.
Situation
Introduction of New Goods
Unmeasured Quality Change
Substitution Bias
10. Problems and Applications Q6
Indicate which of the problems in the construction of the CPI are illustrated in each of the following situations.
Situation
Introduction of New Goods
Unmeasured Quality Change
Substitution Bias
The invention of the iPod The introduction of air bags in cars Increased personal computer purchases in response to a decline in their price More scoops of raisins in each package of Raisin Bran Greater use of fuel-efficient cars after gasoline prices increase
Explanation / Answer
I Pod is a new product. Although it has close similarity with mobile or Laptop yet it is not the same aor substitutes of the two. Its use is in different need satisfaction.Hence invention of i-pod is considered as introduction of new goods.
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Next consider introduction of air bags in the car. It is a mechanism which will reduce the adverse effect of accident on human body. Hence driving of car or travelling in a car is more safe now. It is therrefore considered as unmeasured quality change.
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When price of personal computer is declining people are buying more computer. It means they are substituting lap tops or note pads by such computers. Also people are substituting manual work by using more and more computers. Hence it is considered as Substitution bias.
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More scoops of raisins in each package of Raisin Bran will definitely improve its quality. So it can be considered as unmeasured quality change. As it is a subjective feeling the term unmeasured has been used here.
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After increase in price of gasoline use of less fuel effecient has dropped. On the other hand more use of fuel effecient car is found.THus fuel effecient car has been substituted for fuel ineffecient car. Hence it is a Substitution bias.
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