When the quality of a good deteriorates while its price remains the same,the purchasing power of the dollar
A)increases,so the CPI overstates the change in the cost of living if the quality change is not accounted for.
B)increases,so the CPI understates the change in the cost of living if the quality change is not accounted for.
C)decreases,so the CPI overstates the change in the cost of living if the quality change is not accounted for.
D)decreases,so the CPI understates the change in the cost of living if the quality change is not accounted for.

Question

Quizplus · Accepted Answer

If the quality of a good deteriorates while its price remains the same, the purchasing power of a dollar decreases. This means that the same amount of dollars can buy less in terms of quality. As a result, the CPI will tend to understate the change in the cost of living if the quality change is not accounted for, as it only accounts for changes in the prices of goods and not the quality.

When the Quality of a Good Deteriorates While Its Price